Last edited 11 Aug 2013

Hedley Byrne & Co Ltd v Heller & Partners Ltd

Advertising agents, Hedley Byrne, needed a reference from a banker as to the creditworthiness of a potential customer. They approached their bankers who sought the advice of merchant bankers who in turn reported to Hedley Byrne. The report was headed 'without responsibility' and said that the potential customer was good for ordinary business arrangements. Hedley Byrne proceeded with their contract and by reason of the customer not being good for ordinary business arrangements, lost a considerable sum of money. They sued the merchant bankers.

The House of Lords held that a person is liable for statements made negligently in circumstances where they know that those statements are going to be acted on and they were acted on. However, in this case, the merchant banker escaped liability by reason of having expressed their report to be without responsibility. This case may have assumed new importance since the decision in Murphy v Brentwood District Council.

The approaches adopted by their Lordships in Hedley Byrne were somewhat disparate. However, in so far as it is possible to make one statement of principle from their judgments, that statement is set out in the headnote at page 575 of the All England Law Report and is as follows:

'If, in the ordinary course of business or professional affairs, a person seeks information or advice from another, who is not under contractual or fiduciary obligation to give the information or advice, in circumstances in which a reasonable man so asked would know that he was being trusted, or that his skill or judgment was being relied on, and the person asked chooses to give the information or advice without clearly so qualifying his answer as to show that he does not accept responsibility, then the person replying accepts a legal duty to exercise such care as the circumstances require in making his reply; and for a failure to exercise that care an action for negligence will lie if damage results.’

In essence therefore Hedley Byrne was concerned with negligent mis-statements of facts or opinions, in circumstances where it was reasonable to expect that the recipient of the information would rely on such information and the recipient did in fact rely upon the information. If these factors were present and the recipient suffered financial or economic loss, then a claim in negligence could be brought against the person who gave the information.

A useful illustration of negligent mis-statement in the construction industry is in Independent Broadcasting Authority v EMI Electronics Limited and BICC Construction Ltd (the IBA case). In this case, BICC who had no contractual relationship with IBA were considered to be liable in respect of a negligent mis-statement arising from their letter to IBA dated 11 November 1964 when they negligently mis-stated to IBA that they were 'well satisfied that the structures will not oscillate dangerously...'. IBA relied upon that assurance.

Clearly therefore the Hedley Byrne principle creates a particular species of negligence based upon representation and reliance unconnected with physical damage and entitling a party to recover economic loss. Unlike Anns v Merton London Borough Council the species of negligence established by Hedley Byrne survives the decision in Murphy v Brentwood District Council. However, difficulties arise from the following extracts from the speeches of Lord Keith and Lord Bridge:

Per Lord Keith:

'It would seem that in a case such as Pirelli General Cable Works Ltd v Oscar Faber & Partners where the tortious liability arose out of a contractual relationship with professional people, the duty extended to take reasonable care not to cause economic loss to the client by the advice given. The plaintiffs built the chimney as they did in reliance on that advice. The case would accordingly fall within the principle of Hedley Byrne. I regard Junior Books Ltd v Veitchi Co Ltd as being an application of that principle.’ (see previous section)

Per Lord Bridge:

‘There may of course, be situations where, even in the absence of contract, there is a special relationship of proximity between builder and building owner which is sufficiently akin to contract to introduce the element of reliance so that the scope of the duty of care owed by the builder to the owner is wide enough to embrace purely economic loss. The decision in Junior Books can, I believe, only be understood on this basis.’

It is suggested that the problem arising from the speeches of Lord Keith and Lord Bridge is that in Junior Books Ltd v Veitchi Co Ltd the relationship between the employer and the sub-contractor is not a 'unique’ relationship in the construction industry, indeed it is commonplace. Further there appears to be a complete absence of the representation and reliance that was central to the decision in Hedley Byrne and the court's approach in IBA. It is submitted that the references to 'reliance' in Junior Books Ltd v Veitchi Co Ltd were in the context of the test of proximity rather than a Hedley Byrne reliance.

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