The case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) is a landmark decision in English tort law concerning economic loss resulting from negligent misstatements. Prior to this case, the English legal system did not recognise a general duty of care to prevent pure economic loss caused by negligent advice or information, particularly where there was no contractual relationship between the parties involved.
The decision in Hedley Byrne marked a significant shift by establishing liability for negligent misstatements, even in the absence of a contract, under the principle of “assumption of responsibility.” This case remains a pivotal reference for the law on negligent misstatements and economic loss in English tort law.
Facts of Hedley Byrne & Co Ltd v Heller & Partners Ltd
Hedley Byrne & Co Ltd were a firm of advertising agents who placed contracts on behalf of clients. One of their clients, Easipower Ltd, had placed a large order, and Hedley Byrne wanted to ensure the financial stability and creditworthiness of Easipower before proceeding with further transactions. To assess Easipower’s financial standing, Hedley Byrne asked Heller & Partners Ltd, Easipower’s bankers, to provide a credit reference.
Heller & Partners provided the reference free of charge in the form of a letter stating that Easipower was “considered good for its ordinary business engagements,” but it also included a disclaimer which read, “without responsibility on the part of this bank.” Hedley Byrne relied on this reference and continued to enter into contracts with Easipower.
However, Easipower went into liquidation shortly afterwards, leaving Hedley Byrne with a loss of £17,000 (equivalent to £470,000 in 2023 money). Hedley Byrne brought an action against Heller & Partners, claiming that the information provided was negligently given and was misleading, which resulted in economic loss.
Heller & Partners defended the claim by arguing two points:
- Lack of Proximity: They contended that there was no direct relationship of proximity between the parties, which would typically establish a duty of care in negligence.
- Exclusion of Liability: They argued that the disclaimer in the letter excluded any liability, making it unreasonable for Hedley Byrne to rely on the reference.
Legal Issues
The key issue in Hedley Byrne was whether a party could claim for economic loss caused by a negligent misstatement in the absence of a contractual relationship between the parties. Specifically, the court had to determine whether Heller & Partners, by providing a credit reference to Hedley Byrne, owed a duty of care to the advertising agency despite the disclaimer and lack of any formal contractual agreement.
The case also raised questions about the impact of disclaimers in limiting liability and whether a duty of care could arise from a relationship of trust or reliance in the provision of professional advice or information.
Hedley Byrne & Co Ltd v Heller & Partners Ltd Judgement
The House of Lords ultimately ruled in favour of Heller & Partners, but their judgement established several crucial principles in the law of negligence:
Existence of a Duty of Care in Cases of Negligent Misstatements
The House of Lords found that Heller & Partners did owe a duty of care to Hedley Byrne because of the “special relationship” that existed between the parties. While it was acknowledged that there was no contractual relationship, the court held that a duty of care could still arise in situations where one party is providing information or advice to another, and that party knows or ought to know that the recipient will rely on that advice to their detriment. In this case, it was reasonable for Heller & Partners to foresee that Hedley Byrne would rely on the credit reference when deciding whether to enter into contracts with Easipower.
Disclaimer
Despite recognising the existence of a duty of care, the House of Lords held that Heller & Partners were protected by the disclaimer included in the reference letter. The disclaimer explicitly stated that the information was given “without responsibility,” which effectively excluded liability for any negligence. The court held that a party cannot voluntarily assume responsibility and then simultaneously disclaim it. As Hedley Byrne had accepted the credit reference with the knowledge of the disclaimer, it could not disregard the clear terms upon which the information was provided.
Lord Morris of Borth-y-Gest summarised this point by stating:
- “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.”
This judgement established that disclaimers, if clearly communicated, can exclude liability for negligent misstatements, and the party relying on the information cannot later claim damages for economic loss.
Establishing Liability for Economic Loss
The House of Lords also acknowledged that pure economic loss resulting from a negligent misstatement could be recoverable under certain circumstances, provided that a duty of care existed. This decision was a departure from earlier cases where economic loss was typically not recoverable in the absence of a contractual relationship. In this case, the House of Lords recognised that professionals or those with special skills (such as banks or surveyors) could be held liable for economic loss caused by their negligent advice or information, provided there was a reasonable reliance on that information by the party receiving it.
Lord Morris’s judgement outlined the circumstances under which a duty of care arises in these cases:
- “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.”
Impact of Hedley Byrne on Tortious Liability
Hedley Byrne had a profound impact on the development of tort law in England, particularly in relation to economic loss and negligent misstatements. Prior to this case, the law did not generally recognise a duty of care for purely economic loss in the context of non-contractual relationships. This case opened the door to such claims, provided that a “special relationship” existed between the parties.
In the years following Hedley Byrne, other decisions followed that extended the scope of liability for economic loss. For instance, Anns v Merton London Borough Council [1978] held that defective products, including construction projects, could result in liability for economic loss. Similarly, Caparo Industries plc v Dickman [1990] refined the test for establishing a duty of care and proximity, particularly in cases involving misstatements.
The case also led to further exploration of disclaimers and their enforceability in contracts and torts. The courts increasingly acknowledged that disclaimers could be valid in limiting or excluding liability, especially in professional and commercial contexts, as long as they were clearly stated and reasonably communicated to the party relying on the information.
Subsequent Developments and Case Law
Following Hedley Byrne, a number of important cases applied the principles established in this decision:
- Smith v Eric S Bush [1990] extended Hedley Byrne liability to third-party consumers, allowing them to sue for negligent misstatements even if they were not part of the direct contractual relationship.
- White v Jones [1995] extended Hedley Byrne liability to professionals such as solicitors, who were found liable for negligent advice affecting third parties, even when there was no direct contractual relationship.
- Henderson v Merrett Syndicates Ltd [1995] established that liability for negligent misstatements could be extended to “un-proximate” third parties, further extending the reach of Hedley Byrne principles.
Conclusion
The case of Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 remains a cornerstone in English tort law. It established the principle that negligent misstatements could give rise to claims for pure economic loss, even in the absence of a contractual relationship. The decision extended liability for negligence to professionals providing advice or information, provided there was a reasonable reliance on their expertise.
The ruling also reinforced the importance of disclaimers, recognising that such disclaimers could effectively limit or exclude liability for negligence, provided they were clearly communicated. While the case did not result in a successful claim for Hedley Byrne, it set the stage for the evolution of tort law, particularly in relation to negligent misstatements, economic loss, and professional liability.
Over the years, Hedley Byrne has been cited in numerous cases and has continued to shape the law on economic loss, professional negligence, and the circumstances under which a duty of care arises. As a result, it remains one of the most important decisions in the field of English tort law.
