ACCA F4 - Corp and Business Law (ENG)

Part B The law of obligations  7: The law of torts and professional negligence 115

Hedley Byrne & Co Ltd v Heller and Partners Ltd 1963

The facts: HB were advertising agents acting for a new client, Easipower Ltd. HB requested information

from Easipower's bank (HP) on its financial position. HP returned non-committal replies, which expressly

disclaimed legal responsibility, and which were held to be a negligent misstatement of Easipower's

financial resources.

Decision: While HP were able to avoid liability by virtue of their disclaimer, the House of Lords went on to

consider whether there ever could be a duty of care to avoid causing financial loss by negligent

misstatement where there was no contractual or fiduciary relationship. It decided (as obiter dicta) that HP

were guilty of negligence having breached the duty of care, because a special relationship did exist. Had it

not been for the disclaimer, a claim for negligence would have succeeded.

As you already know, obiter dicta such as those made in 1963 do not form part of the ratio decidendi, and

are not binding on future cases. They will, however, be persuasive.

Note that at the time liability did not extend to those who the advisor might merely foresee as a possible

user of the statement.

However in a subsequent case, the courts extended potential liability, and started to take account of third

parties not known to the adviser. The following case echoed the principles laid down in Anns and

addressed the question of reasonable foresight being present to create a duty of care.

JEB Fasteners Ltd v Marks, Bloom & Co 1982

The facts: The defendants, a firm of accountants, prepared an audited set of accounts showing overvalued

stock and hence inflated profit. The auditors knew there were liquidity problems and that the company was

seeking outside finance. The claimants were shown the accounts; they took over the company for a

nominal amount, since by that means they could obtain the services of the company's two directors. At no

time did MB tell JEB that the stock value was inflated. With the investment's failure, JEB sued MB, with the

following claims.

(a) The accounts had been prepared negligently.

(b) They had relied on those accounts.

(c) They would not have invested had they been aware of the company's true position.

(d) MB owed a duty of care to all persons whom they could reasonably foresee would rely on the

accounts.

Decision: Even though JEB had relied on the accounts (b), they would not have acted differently if the true

position had been known (c), since they had really wanted the directors and not the company. Hence the

accountants were not the cause of the consequential harm and were not liable. Significantly (although this

did not affect the decision as to liability) it was the judge's view that MB did indeed owe a duty of care

through foresight (d) and had been negligent in preparing the accounts (a).

Decisions since JEB Fasteners have, however, shied away from the foresight test and gone back to looking

at whether the adviser has knowledge of the user and the use to which the statement will be put.

8 The Caparo decision

The Caparo case is fundamental to understanding professional negligence. It was decided that auditors

do not owe a duty of care to the public at large or to shareholders increasing their stakes in the

company in question.

This important and controversial case made considerable changes to the tort of negligence as a whole,

and the negligence of professionals in particular. It set a precedent which forms the basis for courts when

considering the liability of professional advisers.

Point to note

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