Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4 (28 May 1963)

Hedley Byrne, advertising agents, suffered financial loss after relying on negligent credit references given by Heller & Partners about a customer. The House of Lords established that a duty of care can arise for negligent misstatements where there is a 'special relationship' between parties, even without a contract, though the defendants escaped liability due to their disclaimer of responsibility.

Facts

Hedley Byrne & Co Ltd, advertising agents, placed substantial advertising orders on behalf of Easipower Ltd on credit terms, becoming personally liable to television and newspaper companies. Concerned about Easipower’s creditworthiness, Hedley Byrne requested their bank, National Provincial Bank, to obtain a reference from Heller & Partners Ltd, Easipower’s merchant bankers. Heller & Partners provided two references (one oral in August 1958 and one written in November 1958) describing Easipower as ‘respectably constituted’ and ‘considered good for its ordinary business engagements’. Both references were given ‘without responsibility’ on the part of Heller & Partners. Relying on these references, Hedley Byrne continued their business with Easipower. When Easipower went into liquidation, Hedley Byrne lost over £17,000 and sued Heller & Partners for negligent misrepresentation.

Issues

Primary Legal Issue

Whether a duty of care exists in giving references or advice where there is no contractual or fiduciary relationship between the parties, such that negligent misstatements causing purely financial loss can give rise to liability in tort.

Secondary Issue

Whether the disclaimer of responsibility (‘without responsibility on the part of this Bank or its officials’) negated any duty that might otherwise have arisen.

Judgment

The House of Lords unanimously dismissed the appeal, but in doing so established important new principles regarding liability for negligent misstatements.

The Special Relationship Principle

Their Lordships held that a duty of care can arise for negligent misstatements causing financial loss where there is a ‘special relationship’ between the parties. This was not limited to contractual or fiduciary relationships but extended to situations where one party undertakes responsibility for information or advice upon which another party is known to rely.

Lord Reid stated that the law must treat negligent words differently from negligent acts due to their volatile nature and potential to cause widespread damage. However, where someone with special skill undertakes to apply that skill for another’s assistance, a duty of care arises.

Lord Morris of Borth-y-Gest concluded that if someone possessed of special skill undertakes, irrespective of contract, to apply that skill for another person who relies upon it, a duty of care will arise.

Lord Devlin explained that the categories of special relationships giving rise to a duty of care are not closed and include relationships ‘equivalent to contract’ where there is an assumption of responsibility.

Effect of the Disclaimer

Despite establishing these principles, the House held that Heller & Partners escaped liability because of their express disclaimer of responsibility. Lord Reid observed that a reasonable man, knowing he was being trusted, could give an answer with a clear qualification that he accepted no responsibility, and by doing so would not have assumed a duty of care.

Lord Devlin stated that a man cannot be said voluntarily to be undertaking a responsibility if at the very moment when he is said to be accepting it he declares that in fact he is not.

Implications

This case fundamentally reformed the law of negligent misstatement. It established that:

• Liability for negligent misstatements causing pure economic loss can exist outside contract or fraud
• The duty arises from a ‘special relationship’ where one party assumes responsibility for information or advice
• The relationship need not be contractual or fiduciary but must involve reliance which the defendant knew or ought to have known about
• Disclaimers of responsibility, if clear and communicated before the advice is given, can prevent the special relationship from arising

The case effectively overruled the narrow interpretation of Derry v Peek that had restricted liability to fraud, and disapproved of Le Lievre v Gould. It vindicated the dissenting judgment of Denning LJ in Candler v Crane, Christmas & Co and laid the foundation for the modern law of professional negligence and liability for negligent advice.

Verdict: Appeal dismissed. While the House of Lords established that a duty of care can arise for negligent misstatements where there is a special relationship between parties, Heller & Partners were not liable because their express disclaimer of responsibility prevented any such duty from arising in the circumstances of this case.

Source: Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4 (28 May 1963)