Chapter 11Business and the law of torttort of deceit. This view of the limited scope of a profes-
sional person’s liability for careless statements is illus-
trated by the following case.
In the Hedley Byrnecase, their Lordships recognised
a new type of liability: they indicated that damages could
be received for careless statements. However, they were
careful to avoid unleashing a Pandora’s box of litigation.
They ruled that the existence of a duty of care in respect
of negligent misstatements was dependent on a ‘special
relationship’ between the parties. Lord Morris described
the relationship in the following terms:
If someone possessed of a special skill undertakes, quite
irrespective of contract, to apply that skill for the assist-
ance of another person who relies on such skill, a duty of
care will arise. Furthermore, if, in a sphere in which
a person is so placed that others could reasonably rely
on his judgment or his skill, or on his ability to make
careful inquiry, a person takes it on himself to give infor-
mation 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 on it, then a duty of care
will arise.
Their Lordships made it clear that a duty of care in
respect of a negligent statement would only be owed to
persons who the maker of the statement knows will rely
on it and where the maker of the statement knows of the
use to which it will be put (knowledge test). The duty of
care would not extend to those who the maker of the
statement might foresee would rely on the statement
(foresight test). Although the Hedley Byrnecase involved
a banker, it is clear that the rule applies equally to the
advice given by other professionals. We shall exam-
ine how the Hedley Byrnerule has been developed in343Candlerv Crane, Christmas & Co(1951)The defendants, a firm of accountants, prepared a com-
pany’s balance sheet and accounts, knowing that they
were going to be used by the managing director to per-
suade the claimant, Candler, to invest money in the
company. Relying on the accounts, the claimant in-
vested £2,000, which he lost when the company was
wound up a year later. The claimant sued the defendants
in negligence, alleging that the accounts had been pre-
pared carelessly and did not accurately represent the
true state of the company’s affairs. The Court of Appeal
held (Denning LJ dissenting) that the defendants were
not liable to the claimant because, in the absence of any
contractual or fiduciary relationship, they did not owe
him a duty of care. In a powerful dissenting judgment,
Denning LJ argued that the defendants did owe the
claimant a duty of care. In his opinion:
‘Accountants owe a duty of care not only to their own
clients but also to all those whom they know will rely on
their accounts in the transactions for which those
accounts are prepared.’
The duty of care arose from the close relationship be-
tween the parties and it followed, therefore, that no duty
would be owed to complete strangers. Denning LJ had
to wait 12 years for his arguments to be accepted.The new judicial approach to negligent statements
was heralded in a case involving bankers’ references.
Easipower, but lost £17,000 when Easipower went into
liquidation. Hedley Byrne sued Heller for the amount of
the financial loss suffered as a result of the negligent
preparation of the banker’s reference. The House of
Lords held that Heller and Partners were protected by
the disclaimer of liability. Their Lordships then consid-
ered (obiter dicta) what the legal position would have
been if the disclaimer had not been used. They all agreed
that there could be liability for negligent misstatement
causing financial loss, even in the absence of a contrac-
tual or fiduciary relationship (the decision in Candlerv
Crane, Christmas & Cowas disapproved and the dis-
senting judgment of Denning LJ approved).
Comment. The disclaimer which so successfully pro-
tected Heller from liability would now be subject to the
test of reasonableness set out in s 2(2) of the Unfair
Contract Terms Act 1977. It is unlikely that such a dis-
claimer could be justified as reasonable.Hedley Byrne & Co Ltdv Heller and
Partners Ltd(1963)
Hedley Byrne was a firm of advertising agents and
Easipower Ltd was one of its clients. Before placing
advertising contracts on behalf of Easipower in circum-
stances which involved giving credit, Hedley Byrne
instituted enquiries about Easipower’s creditworthiness.
Hedley Byrne asked its own bank, the National Provin-
cial Bank Ltd, to obtain a reference from Easipower’s
bankers, Heller and Partners. Heller’s reference, which
was headed ‘without responsibility on the part of the bank
or its officials’, stated that Easipower was ‘a respectably
constituted company considered good for its ordin-
ary business engagements’. Relying on this satisfactory
reply, Hedley Byrne executed advertising contracts for