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

Advertising agents suffered financial loss after relying on a favourable but negligently prepared credit report from their prospective client's bank. The bank had disclaimed responsibility. The House of Lords held that a duty of care for negligent misstatement can exist but found the disclaimer was effective.

Facts

The appellants, Hedley Byrne & Co Ltd, were advertising agents. They were due to place substantial advertising orders for a client, Easipower Ltd, on terms where they would be personally liable for the cost. To assure themselves of Easipower’s financial standing, they asked their own bank, National Provincial Bank Ltd, to obtain a report from Easipower’s bank, the respondents, Heller & Partners Ltd. Heller & Partners provided a report via National Provincial Bank. The crucial reply was headed:

CONFIDENTIAL.
For your private use and without responsibility on the part of the bank or its officials.

The body of the letter stated that Easipower was a ‘respectably constituted company, considered good for its ordinary business engagements’. Hedley Byrne relied on this positive reference, placed the orders, and subsequently lost over £17,000 when Easipower went into liquidation. Hedley Byrne sued Heller & Partners for negligence, claiming the reference was given carelessly and caused their financial loss.

Issues

The central legal issues before the House of Lords were:

1. Can a person be liable for a negligent, though honest, misrepresentation which causes pure economic loss, in the absence of a contractual or fiduciary relationship?
2. If such a duty of care can exist, was the disclaimer (‘without responsibility’) issued by Heller & Partners effective in excluding liability?

Judgment

The House of Lords unanimously found for Hedley Byrne on the legal principle but against them on the facts. The appeal was allowed, establishing that a duty of care could arise in situations of negligent misstatement, but the claim itself failed because the disclaimer was effective. The Law Lords overturned previous authority, notably Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164, which had denied recovery for negligent misstatement causing financial loss.

The Principle of Assumed Responsibility

The Court established that a duty of care would arise when there is a ‘special relationship’ between the parties. This relationship exists where one party, the advisor, assumes responsibility for the advice or information given to another party, the advisee, knowing that the advisee will reasonably rely upon it.

Lord Reid articulated a test for when such a relationship arises:

…where it is plain that the partv seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the othei gave the information or advice when he knew or ought to have known that the inquirer was relying on him.

Lord Morris of Borth-y-Gest added clarity, stating:

…if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise.

The Effect of the Disclaimer

Despite establishing this new ground for liability, all five Law Lords agreed that Heller & Partners were not liable. The express disclaimer of ‘without responsibility’ was held to be clear and effective. It prevented the necessary assumption of responsibility from arising in the first place. Lord Devlin noted that a person giving advice in such circumstances has two options: to say nothing, or to provide the information but with a clear qualification that no responsibility is accepted. Heller & Partners had chosen the latter course, successfully negating any duty of care.

Implications

The decision in Hedley Byrne v Heller was a landmark development in the English law of tort. Its primary importance lies in establishing the tort of negligent misstatement causing pure economic loss. Before this case, recovery for economic loss caused by negligence was generally confined to instances where it was a direct consequence of physical damage to person or property. This case created an exception, allowing claims where a ‘special relationship’ based on an assumption of responsibility and reasonable reliance could be proven. It fundamentally altered the scope of the duty of care, moving beyond the ‘neighbour principle’ of Donoghue v Stevenson in the context of professional advice and services. The principles laid down in this case form the foundation of liability for professional negligence across numerous sectors.

Verdict: The appeal was allowed. The House of Lords held that a duty of care could arise from negligent words causing financial loss. However, on the facts of the case, the defendant’s disclaimer of responsibility was effective, and therefore the claim against them failed.

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