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14 Cards in this Set
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Candler v Crane, Christmas & Co [1951] 2 KB 164 |
A director of a company needed more capital, so he put an advertisement for investment of £10,000. Mr Candler responded, saying he was interested in investing £2000, provided he was shown company's accounts. Director instructed Crane, Christmas & Co, a firm of auditors, to prepare company’s accounts and balance sheet. Mr Candler relied on their accuracy and subscribed for £2,000 worth of shares in the company; but company was actually in a very poor state. Director used £2,000 on himself and then went bankrupt. Mr Candler lost all money he invested. He brought an action against accountants, Crane, Christmas & Co. for negligently misrepresenting state of company. As there was no contractual relationship between parties, no case arose in misrepresentation, and so the action was brought in tort for pure economic loss. Majority of CA relied on case of Derry v Peek to refuse a remedy to C, holding that loss resulting from negligent misstatement was not actionable in absence of any contractual or fiduciary relationship between parties. Denning LJ (as the Master of the Rolls then was) delivered a powerful dissent, in which he argued that any person in reasonable contemplation of someone making a statement who might rely on that statement is owed a duty of care. His dissenting judgment was later upheld by HL in Hedley Byrne v Heller 1963. |
Investment in a company that went bankrupt |
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Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 |
Prior to decision, notion that a party may owe another a duty of care for statements made in reliance had been rejected, with only remedy for such losses being in contract law. HL overruled the previous position, in recognising liability for pure economic loss not arising from a contractual relationship, introducing idea of "assumption of responsibility". Hedley Byrne was a firm of advertising agents. A customer, Easipower Ltd, put in a large order. Hedley Byrne wanted to check their financial position, and creditworthiness, and subsequently asked their bank, National Provincial Bank, to get a report from Easipower’s bank, Heller & Partners Ltd., who replied in a letter that was headed, "without responsibility on the part of this bank" It said that Easipower was, “considered good for its ordinary business engagements". The letter was sent for free. Easipower went into liquidation, and Hedley Byrne lost £17,000 on contracts. Hedley Byrne sued Heller & Partners for negligence, claiming that information was given negligently and was misleading. Heller & Partners argued there was no duty of care owed regarding statements, and, in any case, liability was excluded. HL found that relationship between parties was "sufficiently proximate" as to create a duty of care. It was reasonable for them to have known that information that they had given would likely have been relied upon for entering into a contract of some sort. That would give rise, court said, to a "special relationship", in which D would have to take sufficient care in giving advice to avoid negligence liability. However, on facts, disclaimer to give advice ‘without responsibility on our part’ was found to be sufficient to discharge any duty created by Heller's actions. D would have been liable to them for the resulting losses if they had not had the disclaimer. D excluded liability because of the ‘without responsibility’ clause but such a clause would now be subject to s.11 of Unfair Contract Terms Act 1977 and would need to satisfy test of reasonableness.) => The case profoundly changed the law in two respects: 1. D were held to owe a duty to take care in the advice or information that they gave 2. The duty extended to purely economic losses. |
Incorrect and negligent information provided by bank |
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Chaudhry v Prabhakar [1988] 3 All ER 718 |
In this case it was clear that we considered advice was being sought when C asked a friend who had some knowledge of cars to find a suitable car that had not been involved in an accident. D D found her a car which he recommended but which was subsequently discovered to have been involved in a serious accident, and poorly repaired. Although the CA imposed liability on D, Stocker LJ stated that: … in the absence of other factors giving rise to such a duty, the giving of advice sought in context of family, domestic or social relationships will not in itself give rise to any duty in respect of such advice. In such situations there would not be reasonable reliance. |
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Smith v Eric S Bush [1990] 1 AC 831 |
Eric Bush was a surveyor who was employed by Abbey National to assess value of a property which was to be purchased by Claimant, Mrs Smith. Mrs Smith had paid Abbey National for Mr Bush’s work to be carried out. Mr Bush’s report stated that property was not in need of any essential repairs. This was not correct, as it turned out that property had suffered structural damage. c bought property in reliance on this report. C&D did not have a contract between themselves (there was only a relationship between Abbey National and each of C and D). The contract between Abbey National and C included an exemption clause which specifically exempted D from liability for his report. C argued both in contract and tort; first that exemption clause was unreasonable for purposes of sections 2(2) and 13(1) of the Unfair Contract Terms Act 1977 and second that there was that D owed C a duty of care in tort. The issues in this case were three: first, whether there was a duty to exercise reasonable care and skill incumbent on valuer in tort; second, whether exemption clause in contract falls under the Unfair Contract Terms Act 1977 and third, whether relying on that exemption clause is fair and reasonable for purposes of the Act. The court held that exemption clause was unreasonable for purposes of Unfair Contract Terms Act 1977. It was of particular note that this was a low value property to be used as dwelling and that it was common practice for purchasers to rely on valuations in making such decisions. Where property is to be an investment or to be used as a business or whether it was of higher value, an exemption clause of this nature could be reasonable. surveyor was held to owe a duty to purchaser and not just to bank, even though purchaser had been advised about desirability of obtaining her own survey but had not done so. |
Reliance of incorrect property valuation. |
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Caparo Industries plc v Dickman [1990] UKHL 2 |
Campari is landmark case which created tripartite test in establishing duty of care. This test departs from Donoghue v Stevenson and Wilberforce test laid down in Anns v Merton London Borough Council which starts from assumption that there is a duty of care and that harm was foreseeable unless there is good reason to judge otherwise. Caparo starts from assumption no duty is owed unless criteria of three stage test is satisfied. A firm of accountants appealed against a decision of CA in which it was decided that accountants owed a duty of care to appellant shareholders when producing an audit report required by statute. claim was for negligent misstatement. Caparo had bought shares of which the report was about as part of a takeover. Caparo had bought large numbers of shares in company Fidelity. annual accounts, which were done with help of accountant Dickman, were issued to shareholders, which now included Caparo. Caparo knew that Fidelity was in a bad financial position and that the share price fell. Caparo made a general offer for remaining shares. But once it had control, Caparo found that Fidelity's accounts were in an even worse state than had been revealed by directors or auditors. The appellant had relied upon the results of the report which states that Fidelity made a pre-tax profit of £1.3M. In fact Fidelity had made a loss of over £400,000. It was later found that results of report had misrepresented the profits of firm, in turn causing a loss for Caparo. It sued Dickman for negligence in preparing accounts and sought to recover its losses. This was difference in value between the company as it had and what it would have had if accounts had been accurate. HL reversed decision of CA and held that no duty of care had arisen in relation to existing or potential shareholders. only duty of care auditor`s owed was to governance of firm. A duty may arise in a Caparo-type situation if relationship between claim and purpose for which auditors’ report was prepared is close enough. Under three stage checklist, Caparo test, for a duty of care to arise: 1. the loss must be reasonably foreseeable 2. there must be a relationship of proximity between parties, and 3. it must be fair, just and reasonable that law should impose a duty – this enables court to take account of any underlying policy concerns. => There was no voluntary assumption of responsibility towards potential investors, nor would it be reasonable for such an investor to rely on this report for that purpose. |
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Spring v Guardian Assurance Ltd [1995] 2 AC 29 |
In Spring writer of a reference about a former employee seeking a job was held to owe a duty of care to employee and not merely to prospective employer who relied on it. Notice that D was obliged (through rules of regulatory system for financial institutions) to provide a reference. reference supplied by D was damning and mistakenly alleged that C was dishonest. He suffered financial loss through not being able to find gainful employment. Even though reference was defamatory C would not have succeeded in an action for defamation since, in absence of malice, D would have been able to establish a defence of qualified privilege. C instead sued in negligence. HL agreed that preservation of law of defamation would not be sufficient to deny C a remedy and D was liable. The majority (Lord Keith dissenting) decided that two torts were different. Defamation exists to protect reputation but a negligent reference can do harm without affecting a person’s reputation. |
Negligent reference |
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McKie v Swindon College [2011] EWHC 469 (QB) |
In this case an unsolicited email (not a reference) containing largely erroneous and untrue statements sent by former employer of a lecturer led to his dismissal from a new job. Although email was not a reference, applying Caparo test, D was nevertheless liable for negligent statement. |
unsolicited email (not a reference) containing largely erroneous and untrue statements |
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Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 |
This case concerned near collapse of Lloyd's of London when hurricanes in United States devastated its property holdings. It called upon its "Names" (shareholders) to indemnify them for its losses. Names sued shareholding company for mismanagement and negligence. 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 liability to "un-proximate" third parties. existence of a contractual relationship does not preclude liability in tort: their Lordships held that assumption of responsibility can be basis of recovery in tort where D undertakes a professional task. major significance here was allowance of claims in both contract and tort, which blurred divide between two. Some of first party Names claimed in tort to overcome three-year limit in which an action must be taken in contract. In allowing such an action, HL 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 law's development in searching for a liability in tort where parties are in a contractual relationship." The allowance of concurrent actions was immensely controversial, as it ran contrary to legal orthodoxy. The ‘extended Hedley Byrne principle’ was recognised: D can be liable where there has been a voluntary assumption of responsibility by D towards C either generally or for purposes of a specific transaction. => On this view, liability for negligent misstatements is merely an example of a wider principle and reliance is not a necessary ingredient of liability. |
This case concerned the near collapse of Lloyd's of London when hurricanes in United States devastated its property holdings. |
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Williams v Natural Life Health Foods [1998] 1 WLR 830 |
scope of extended Headset Byrne principle was explained by Lord Steyn this case, where C entered into a contract with a company to franchise a health food store. C’s business was not a success and they sought to prove that D had personally assumed responsibility for negligent advice provided by company (which had subsequently been wound up). Although it was held in this case that D had not personally assumed responsibility to C, Lord Steyn said that extended Hedley Byrne principle established in Henderson does not merely apply to negligent statements, but also covers negligent performance of services and can even found a tort duty concurrently with contract. |
contract with a company to franchise a health food store |
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West Bromwich Albion Football Club v El-Safty [2006] EWCA Civ 1299 |
Henderson was applied in this case where a duty of care to patient was not accompanied by an assumption of a duty to a third party not to cause financial loss. In this case football club brought an action against a consultant surgeon for financial losses suffered by club when one of its valuable players was negligently prescribed treatment by D. Although a degree of foreseeability and proximity was found to exist between consultant and club (which had paid for treatment), Caparo test was applied. CA held that it would not be fair, just and reasonable to impose a duty to club on ground that such a duty could conflict with doctor’s primary duty to care for his patient. |
football club brought an action against a consultant surgeon for financial losses |
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Burgess v Lejonvarn [2017] EWCA Civ 254 |
ratio in Henderson was applied in this case in a dispute over alleged provision of gratuitous professional services. For about 10 years prior to events giving rise to this dispute C (the Burgesses) and D (Mrs Lejonvarn) were good friends. C believed quote in excess of £150,000 plus VAT from a well-known landscape gardener to carry out work to be too expensive and they sought professional assistance from their friend and former neighbour, D. D secured contractor to carry out earthworks and hard landscaping with intention that she would provide subsequent design input for which she would charge a fee. However, project went badly wrong and Burgesses sued Mrs Lejonvarn both in contract and in tort. court found it quite impossible to find any clear form of offer or acceptance and concluded that there was no contract between the parties. However, claim in tort was successful: D possessed a special skill and she had assumed a responsibility in respect of both advice and service on which her friends relied. |
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White v Jones [1995] 2 AC 207 |
This is an important example of extended Hedley Byrne principle where assumption of responsibility by a solicitor towards his clients was extended to intended beneficiary of client’s will who, as result of failure by solicitor to execute will before client’s death, was deprived of intended legacy. case is striking because C did not suffer a loss, but merely failed to get a financial benefit that deceased testator had intended her to have. main reason for extending responsibility of solicitor was that otherwise there would be no sanction against a failure by solicitor: deceased’s client estate would have a contract action against solicitor, but estate had suffered no loss. Reliance on statement by C is not essential to establish a duty of care. Their Lordships held that by accepting instructions to draw up a will, a solicitor came into a ‘special relationship with those intended to benefit under it’ and this, in consequence, imposed a duty on solicitor to act with due expedition and care on behalf of beneficiaries. |
failure by solicitor to execute will before client’s death |
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Gorham v British Telecommunications plc [2000] 4 All ER 867 |
This is an example of scope of an extended assumption of responsibility. CA confirmed that White v Jones is not confined to claims relating to wills. Mr Gorham was sold a personal pension without being advised that BT’s occupational pension might be better for him. Although, even if he had joined the BT scheme when he was informed that it might be better, his family would not have been entitled to a pension because he would not have been a member of scheme for two years before his death. They would, however, have been entitled to a lump sum and it was clear that Mr Gorham had intended to create a benefit for his dependent wife and family and therefore a duty of care was owed to them by the insurance company. |
Mr Gorham was sold a personal pension without being advised that BT’s occupational pension might be better for him |
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Customs and Excise Commissioners v Barclays Bank Plc [2006] UKHL 28 |
In this case C had obtained a ‘freezing order’ against assets of two companies in order to protect VAT payments which were owed to C. orders should have alerted bank not to allow companies to withdraw money from their accounts. Nevertheless, companies managed to withdraw large sums and Commissioners were then unable to recover money they were owed. judge at first instance held that defendant bank had not owed a duty of care to Commissioners but CAl held that they were owed a duty of care on basis of an assumption of responsibility by bank as soon as freezing order was served and by application of Caparo ‘fair, just and reasonable’ test. HL reversed CA’s finding of liability and restored trial judge’s original decision; no common law duty of care could be said to arise out of freezing order itself. Hedley Byrne special relationship was not easily established on basis of reliance because Commissioners did not rely on D to comply with order. Commissioners relied on courts to enforce order. A degree of voluntariness is essential to an ‘assumption’ of responsibility but in this case D had freezing order ‘thrust upon them’ by court. If ‘voluntary assumption of responsibility’ is present then it may suffice to impose a duty, but this is not a necessary condition of liability. Where voluntary assumption of responsibility test does not provide a clear statement of duty then Caparo three-stage test may be applied and policy issues considered. It would not be fair, just and reasonable to impose a duty of care. Such a duty would make banks liable for potentially huge sums in response to minor mistakes on their part; additionally there are better means than law of tort for maintaining strict standards of propriety in banking. => Robinson v CC (2016) established that Caparo three stage test should only be applied in novel cases if no precedent exists. If a case with similar facts exists this should be applied. If not, the law could be expanded incrementally from other cases even if facts are not similar. |
C had obtained a ‘freezing order’ against assets of two companies in order to protect VAT payments which were owed to C. |
