Duty Pure Economic Loss By Negligent Words - Torts Law

Class 4: Duty- Pure economic loss by negligent words:

• It is not consequential economic loss. You just lose money because of the words of someone else. More people are at risk of this happening- now everyone is a shareholder. You can’t find a physical injury but now it is more debatable because capitalist systems are meant to have competition and take money off people. Why should we compensate for a loss that part of the rules of the game?

In class discussion:

• Teddy (owner of company) v government

  • Teddy can’t sue. He relied on unsigned emails.

• Bernice v Teddy

  • Teddy induced Bernice into his company.

  • Speculative so no duty of care.

• Bernice v Eco Investment Bank

  • Had to provide accurate information?

  • Investment bank had a duty of care but they performed it by saying that no company is failure proof.

  • Disclaimer against liability.

  • Does she have a duty of care to inform why she wants the info or does the service have to be at the same level always? Privacy rights?

  • The guy who gave the advice was new and not experienced.

You need to get one of these to have a duty of care. Use the information from the Bernice example.

• You have to have negligent misstatement but that is not enough.

• ‘Equivalent contract’. Was there a contract?

• ‘Reasonable reliance’. E.g. is it reasonable Bernice rely on the information from the bank.

• ‘Assumption of responsibility’. Was the bank responsible for the advice?

• ‘using special skill’. Was the bank using a special skill in giving Bernice advice?

• Purpose of asking for the information?

• Inducement? Does this just show an assumption of responsibility.

Page 170

Hedley Byrne and Co v Heller and Partners (1964) – Does a company who gives gratuitous advice owe a duty of care to someone wanting to know if they should invest? Yes but not when there is a disclaimer.

Facts:

• Hedley Byrne were advertising agents.

• They put substantial orders for advertising time on the T.V. on behalf of Easipower Ltd and were personally liable.

• Heller and Partners were merchant bankers with whom Easipower Ltd had an account. They indicated in writing that the company was good for normal business relations and could meet the commitment.

• Hedley Byrne contacted Heller and Partners again about a 100,000 pound per annum advertising contract. They made the statement; “Respectably constituted company, considered good for ordinary business engagements. Your figures are larger than we are accustomed to see”.

• Easipower went into liquidation. They lost 17,661 pounds.

Remedy sought:

• Hedley Byrne claimed that amount, alleging that Heller and Partners were in breach of a duty in giving their replies negligently.

Prior proceedings:

• Hedley Byrne lost in trial and in the Court of Appeal.

• They appealed to the House of Lords.

Legal issue:

• Was the performance of the service by Heller and Partners gratuitous and therefore had no legal liability for its performance except an honest opinion?

• Did Heller and Partners give a warranty in regards to the information they were making available?

• Did the advice carry a legal responsibility?

Outcome:

• Appeal dismissed. Hedley Byrne lost.

Legal reasoning:

• There was a duty of care but there was a disclaimer- they said the advice was without responsibility on behalf of the bank.

• Lord Reid reasoned that negligent words must be treated differently from negligent acts. Careful people often express definite opinions in social occasions that are not professional. A negligently made article like in Donoghue v Stevenson will cause one accident but words broadcasted can affect many people. An innocent but negligent misrepresentation will therefore give no cause of action. The question is whether there is a warranty. A reasonable man must know that his judgment is being relied on. In this case, an honest opinion was made. Inquirers cannot expect a full and objective statement based on accurate and factual information. One option is to be silent or to make a clear qualification that they have no responsibility for the advice.

• Lord Morris of Borth-Y-Gest reasoned that a duty of care arises if a person knows their advice will be passed on and that reliance will be placed on it. A brief expression of opinion only needs to be honest.

• Lord Hodson reasoned that the bank was not under a legal obligation to do more than give an honest knowledge to the best of his belief.

• Lord Devlin reasoned that payment for advice is good evidence that it is being relied upon. It is harder to decide when no consideration is being given. The defendant must be shown to assume a legal responsibility. The fact that they agreed to perform the service, there is a duty of care.

• Lord Earce reasoned that if both parties say there should be no liability, then no liability is assumed.

Ratio decidendi:

• When a gratuitous inquiry is made in business without consideration, no legal duty arises except an honest answer to the best of their belief (when there is a disclaimer otherwise there is a duty of care).

• If a person knows their advice will be passed on and that reliance is placed on it, then a duty of care will arise. They must assume legal responsibility.

• If a defendant says ‘let me do this for you; do not waste your money in employing a professional, you can rely on me’ they cannot escape liability.

Page 303

Esanda Finance v Peat Marwick Hungerfords (1997) – pure economic loss caused by negligent words.

Facts:

• Esanda entered into a contract with Excel where it lent money to companies associated with it.

• Excel...