Hedley Byrne & Co Ltd VS.
Heller & Partners Ltd
Court House of Lords
Decided 28 May 1963
Judge(s) Lord Reid, Lord Morris of Borth-y-Gest, Lord
sitting Hodson, Lord Devlin and Lord Pearce
Citation(s) [1964] AC 465, [1963] 2 All ER 575, [1963] 3 WLR
101, [1963]
Introduction
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
(‘Hedley Byrne’)
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.
Facts in Hedley Byrne
Hedley Byrne was advertising agents placing contracts on behalf of a client on credit terms.
Hedley Byrne would be personally liable should the client default. To protect themselves,
Hedley Byrne asked their bankers to obtain a credit reference from Heller & Partners (‘H&P’),
the client’s bankers. The reference (given both orally and then in writing) was given gratis and
was favorable, but also contained an exclusion clause to the effect that the information was given
‘without responsibility on the part of this Bank or its officials’. Hedley Byrne relied upon this
reference and subsequently suffered financial loss when the client went into liquidation.
Decision in Hedley Byrne
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:
1. (a) a fiduciary relationship of trust & confidence arises/exists between the parties;
2. (b) the party preparing the advice/information has voluntarily assumed the risk;
3. (c) there has been reliance on the advice/info by the other party, and
4. (d) such reliance was reasonable in the circumstances.
Subsequent impact of Hedley Byrne on tortuous liability
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
liability, culminating in Anns v Merton London Borough Council 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 later before a major shift in the
legal climate resulted in this decision being overruled.
The House of Lords in Caparo Industries plc v Dickman 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:
‘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.’
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). 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 cases, 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’.
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 plc applied a multi-test approach
incorporating a threefold test set out by Lord Griffiths in Smith v Bush, the assumption of
responsibility test and Lord Bridge’s approach in Caparo.
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.
