H.

P NATIONAL LAW
UNIVERSITY ,SHIMLA
Assignment of
“LAW OF TORTS”
(Assignment second )

Topic: Hedley Byrne & Co Ltd v Heller & Partners Ltd.

(1966) 3 AII ER 891

Submitted To:
Mr. Santosh Kumar Sharma
Dr. Ruchi Gupta
Submitted By:
Tarun chhapola
BA.LL.B(HONS.)-I SEMESTER
Roll No.-50
 ACKNOWLEDGEMENTS

I would like to express my thanks to the people who have helped me throughout my project .
I am grateful to our Vice Chancellor Prof. Dr. S.C.Raina , Registrar Prof. Dr. S.S Jaswal
and Mr. Santosh Kumar Sharma and Dr. Ruchi Gupta for their support to the project.

A special thanks of mine goes to my classmates who helped me out in completing the
project ,where they all exchanged their own interesting ideas, thoughts and made this possible
to complete my project with all accurate information , I wish to thank my parents ,brother for
their personal support and attention who inspired me to go my own way .

Last but not least I want to thank my friends who treasured me for my hard work and

encouraged me and finally to GOD who made all the things possible for me till the end
Table of Contents
1. Abstract.............................................................................................2

2. Brief Background of case.................................................................2

3. Facts..................................................................................................2

3. Judgement.........................................................................................3

4. Analysis............................................................................................4

5. Other developments..........................................................................6

6. Conclusion........................................................................................6
 1. ABSTRACT
In 1963 the House of Lords established that in limited circumstances - if a duty of
care arose in the making of statements - pure economic loss in tort could now be recoverable
in English law.

Issues raised by: Hedley Byrne & Co Ltd v Heller & Partners Ltd.

A negligent misstatement may give rise to an action for damages for economic loss.
When a party seeking information or advice from another - possessing a special skill - and
trusts him to exercise due care, and that party knew or ought to have known that the first
party was relying on his skill and judgment, then a duty of care will be implied.

2. Brief Background of case

In the case of Hedley Byrne & Co Ltd v Heller & Partners Ltd. is an English tort law
case on pure economic loss, resulting from a negligent misstatement. Prior to the decision,
the notion that a party may owe another a duty of care for statements made in trust had been
rejected, with the only remedy for such losses being in contract law. The House of Lords
overruled the previous position, in recognising liability for pure economic loss not arising
from a contractual relationship, introducing the idea of "assumption of responsibility".

3. Facts
→ Hedley (a firm) wanted to know if it would be advisable to extend credit to a customer,
Easipower.

→ Hedley asked Heller whether it would be advisable.

→ Heller advised Hedley that it was appropriate to extend credit to Easipower.

→ Hedley extended credit and Easipower went out of business.

→ Hedley sued Heller.

 Hedley Byrne were a firm of advertising agents. Working for a company called
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
obtained report from the defendant, Heller & Partners Ltd. The banker of Easipower’s bank.
The defendant replied the reference (given both orally and then in writing) was given gratis
and was favourable, but also contained an exclusion clause to the effect that the information
was given

"without responsibility on the part of this bank" replied that Easipower was "considered
good for its ordinary business engagements".

In reliance on these references the appellants placed orders. Which resulted Easipower
went liquidation and Hedley Byrne lost £17,000 on contracts. Hedley Byrne sued Heller &
Partners for negligence, claiming that the information was given negligently and was
misleading. Heller & Partners argued there was no duty of care owed regarding the
statements, and in any case liability was excluded.

3. Judgement
The court found that the relationship between the parties was "sufficiently proximate"
as to create a duty of care. It was reasonable for them to have known that the information that
they had given would likely have been relied upon for entering into a contract of some sort.
This would give rise, the court said, to a "special relationship", in which the defendant would
have to take sufficient care in giving advice to avoid negligence liability. However, on the
facts, the disclaimer was found to be sufficient enough to discharge any duty created by
Heller's actions. There were no orders for damages. Lord Morris of Borth –Y -Gest, “I
consider that it follows and that it should now be regarded as settled that if someone
possessing 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 fact that
the service is to be given by means of or by the instrumentality of words can make no
difference. Furthermore, if in a sphere in which a person is so placed that others could
reasonably rely upon his judgment or his skill or upon his ability to make careful inquiry, a
person takes it upon himself to give information or advice to, or allows his information or
advice to be passed on to, another person who, as he knows or should know, will place
reliance upon it, then a duty of care will arise. ...in my judgment, the bank in the present case,
by the words which they employed, effectively disclaimed any assumption of a duty of care.
They stated that they only responded to the inquiry on the basis that their reply was without
responsibility. If the inquirers chose to receive and act upon the reply they cannot disregard
the definite terms upon which it was given. They cannot accept a reply given with a
stipulation and then reject the stipulation. Furthermore, within accepted principles... the
words employed were apt to exclude any liability for negligence. ” Effectively, the House of
Lords had chosen to approve the dissenting judgment of Denning LJ in Candler v Crane,
Christmas & Co.

The court found that H&P's disclaimer was sufficient to protect them from liability
and Hedley Byrne's claim failed. However, the House of Lords ruled that damage for pure
economic loss could arise in situations where the following four conditions were met:

(a) A fiduciary relationship of trust & confidence arises/exists between the parties;

(b) The party preparing the advice/information has voluntarily assumed the risk;

(c) There has been reliance on the advice/info by the other party, and

(d) Such reliance was reasonable in the circumstances.

4.Analysis
In the years following Hedley Byrne, other types of economic loss claim were tried
and sometimes successful. Defective products, including construction projects, were held to
result in liability1, culminating in Anns v Merton London Borough Council2 where the court
held that the negligent oversight by a council resulting in cracks to a building from
inadequate foundations amounted to 'material physical harm', rather than pure economic loss
so that damages for the costs of repairs were recoverable. This case was followed 5 years
later3 before a major shift in the legal climate resulted in this decision being overruled4.

The House of Lords in Caparo Industries plc v Dickman5 also refined the Hedley
Byrne test. Lord Bridge set out the three requirements to be found before a relationship of
sufficient proximity would be established in a misstatements case:
1
Dutton v Bognor Regis Building Co Ltd [1972] 1 QB 373 - local authority had approved defective
foundations.
2
[1978] AC 728.
3
Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520.
4
Murphy v Brentwood District Council [1991] 1 AC 398.
5
Ibid.
 'The salient feature of all these cases is that the defendant giving advice or
information was fully aware of the nature of the transaction which the plaintiff had in
contemplation, knew that the advice or information would be communicated to him, directly
or indirectly and knew that it was very likely that the plaintiff would rely on that advice or
information in deciding whether or not to engage in the transaction in contemplation.'6

In Caparo itself, reliance on the information was not reasonable because it was
supplied for one purpose and could (and should not) be relied upon for any other purpose.

The current test for determining assumption of responsibility was set out in
Henderson v Merrett Syndicates Ltd (No. 1)7. Investors, acting in syndicates, in the Lloyds of
London insurance market, (the 'Names') brought claims arising out of losses incurred in the
1980s. The actions were against underwriting and managing agents who had set out the
syndication for negligence.

The House of Lords unanimously ruled that liability may be found even where there is
no statement or advice relied upon, if there has been an assumption of responsibility for the
conduct of another's affairs. Lord Goff, giving the lead judgment, specifically built upon his
decisions in earlier cases8, emphasising the concept of assumption of responsibility and
stating that even in Hedley Byrne itself, Lord Devlin and Lord Morris's judgments showed
that 'the principle extends beyond the provision of information and advice to include the
performance of other services'9.

This case also dealt with 'concurrency', the liability in both tort and contract on the
same facts. Lord Goff considered that both were possible and that a claimant who could
choose between the two was able to select the remedy that was most advantageous.

The 2006 case of Customs and Excise v Barclays Bank plc10 applied a multi-test
approach incorporating a threefold test set out by Lord Griffiths in Smith v Bush11, the
assumption of responsibility test and Lord Bridge's approach in Caparo.

6
Ibid at 621.
7
[1995] 2 AC 145.
8
eg Spring v Guardian Assurance [1995] 2 AC 296.
9
Henderson v Merrett Syndicates Ltd (No. 1) [1995] 2 AC 145 at 180.
10
[2006] UKHL 28.
11
[1990] 1 AC 831.
 5. Other developments
Despite the decision in Caparo limiting the situations in which a duty of care would
arise in relation to pure economic loss, some subsequent decisions have in fact extended it
further. A duty of care has been found in relation to the writing of references 12, advice in
respect of pension rights13 and more recently, to expert witnesses in court14.

Of particular interest is the growth of the duty in the 'will cases', a number of
decisions between 198015 and 199916. White v Jones17 was another decision where Lord Goff
delivered the lead judgment. Two sisters were cut out of their father's will. Following a
reconciliation, the father instructed a solicitor to draw up a new will reinstating earlier
legacies. There was delay and the father died before the will was revised. The sisters sued the
solicitor and the court found in their favour, awarding them damages for the economic loss
they had suffered as a result of the solicitor's negligence.

This is hard to reconcile. Loss arose because of the negligent provision of a service rather
than from a statement given in the context of a special relationship. Further, although
solicitors have a fiduciary relationship of trust and confidence with their clients, there is the
risk of a conflict of interest if that is extended to intended beneficiaries? Any actual conflict
of interest between testator and beneficiaries will absolutely fall outside the White
exception18.

6. Conclusion
Hedley Byrne opened up a cause of action outside the law of contract for loss based on
reliance on a statement. There have been considerable fluctuations in its application in the
fifty years since the decision, but it has opened the door to liability for negligent statements
made by those in a 'trust' capacity and beyond into the wider area of professional services.

12
Spring v Guardian Assurance [1995] 2 AC 296.
13
Gorham v British Telecommunications plc [2000] 1 WLR 2129.
14
Jones v Kaney [2011] 2 AC 398 (no justification for continuing to hold expert witnesses immune from suit).
15
Ross v Caunters [1980] Ch 297.
16
Carr-Glynn v Frearsons [1999] Ch 326.
17
[1995] 2 AC 207.
18
Clark v Bruce Lance & Co [1988] 1 WLR 881.