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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Spring v Guardian Assurance [1994] UKHL 7 (07 July 1994)
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Cite as: [1994] 3 All ER 129, [1994] UKHL 7, [1994] IRLR 460, [1995] 2 AC 296, [1994] CLC 766, [1994] ICR 596, [1994] 3 WLR 354

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JISCBAILII_CASE_TORT

    Parliamentary Archives,
    HL/PO/JU/18/254

    Spring (A.P.) (Appellant)

    v.
    Guardian Assurance plc and others (Respondents)


    JUDGMENT

    Die Jovis 7° Julii 1994

    Upon Report from the Appellate Committee to whom was
    referred the Cause Spring against Guardian Assurance plc and
    others, That the Committee had heard Counsel as well on Monday
    the 29th and Tuesday the 30th days of November last as on
    Wednesday the 1st day of December last upon the Petition and
    Appeal of Graham Spring of 9 Farriers Croft, Bussage, Stroud,
    Gloucestershire, praying that the matter of the Order set forth
    in the Schedule thereto, namely an Order of Her Majesty's Court
    of Appeal of the 17th day of December 1992, might be reviewed
    before Her Majesty the Queen in Her Court of Parliament and that
    the said Order might be reversed, varied or altered or that the
    Petitioner might have such other relief in the premises as to Her
    Majesty the Queen in Her Court of Parliament might seem meet; as
    upon the case of Guardian Assurance plc, Corinium Holdings
    Limited, Corinium Mortgage Services (Cirencester) Limited and
    Guardian Royal Exchange Assurance plc lodged in answer to the
    said Appeal; and due consideration had this day of what was
    offered on either side in this Cause:

    It is Ordered and Adjudged, by the Lords Spiritual and
    Temporal in the Court of Parliament of Her Majesty the Queen
    assembled, That the said Order of Her Majesty's Court of Appeal
    of the 17th day of December 1992 complained of in the said Appeal
    be, and the same is hereby, Set Aside save as to legal aid
    taxation and that the Order of His Honour Judge Lever QC (sitting
    as a Deputy High Court Judge) of the 20th day of December 1991
    be, and the same is hereby, Restored: And it is further Ordered.
    That the Cause be, and the same is hereby, remitted back to the
    Court of Appeal with a direction to consider the appeal from the
    said order of His Honour Judge Lever QC on the issue of
    causation: And it is also further Ordered. That the Respondents
    do pay or cause to be paid to the said Appellant the Costs
    incurred by him in the Court of Appeal and in respect of the said
    Appeal to this House, the amount of such last-mentioned costs to
    be certified by the Clerk of the Parliaments if not agreed
    between the parties: And it is also further Ordered. That the
    costs of the Appellant be taxed in accordance with the Legal Aid
    Act 1988.

    Cler: Parliamentor:

    Judgment: 7 July 1994

    HOUSE OF LORDS

    SPRING (A.P.)
    (APPELLANT)

    v.

    GUARDIAN ASSURANCE PLC AND OTHERS
    (RESPONDENTS)

    Lord Keith of Kinkel
    Lord Goff of Chieveley
    Lord Lowry
    Lord Slynn of Hadley
    Lord Woolf


    LORD KEITH OF KINKEL

    My Lords,

    The facts of this case are quite complex. They are set out very fully
    in the judgment of Glidewell L.J. in the Court of Appeal, and it is
    unnecessary to rehearse them in detail in order to identify the most important
    issue of law which arises on the appeal to this House, which is whether one
    who supplies a defamatory reference about a person in response to a request
    from a concern with which that person is seeking employment is liable in
    negligence to the subject of the reference if it has been compiled without
    reasonable care.

    It is, however, necessary for an understanding of the manner in which
    the issue arises to give a brief outline of the salient facts. The plaintiff, Mr.
    Spring, was in 1989 employed by the third defendants ("Corinium") as sales
    director (designate) and office manager at their premises in Cirencester.
    Corinium were estate agents and were also agents for the sale of insurance
    policies issued by the first defendants ("Guardian Assurance") of which they
    were an "appointed representative" within the meaning of section 44 of the
    Financial Services Act 1986, and thus authorised to carry on investment
    business. On 22 July 1988 Mr. Spring was appointed a "company
    representative" of Guardian Assurance and was thus authorised, in accordance
    with rule 1.2. of the Lautro Rules 1988, to sell Guardian insurance policies
    and to advise on their merits. Lautro is the Life Assurance and Unit Trust
    Regulatory Organisation, the self-regulatory body of the industry set up under
    the Act of 1986.

    On 7 July 1989 the major shareholder in Corinium sold the company
    to Guardian Assurance, which appointed a Mr. Siderfin to be its chief
    executive. Mr. Siderfin did not get on with Mr. Spring, and on 26 July 1989

    he dismissed him without explanation. Mr. Spring then ceased to be a
    Guardian Assurance company representative. Mr. Spring, together with a Mr.
    Parker, sought to go into business in Dursley, near Cirencester, selling the
    policies of another insurance company, and to this end he approached the
    Scottish Amicable Life Assurance Society Plc. Scottish Amicable, like
    Guardian Assurance, was a member of Lautro, the rules of which at the time
    included the following:

    "3.5(1) A person shall not be appointed as a company
    representative of a member unless the member has first taken
    reasonable steps to satisfy itself that he is of good character and of the
    requisite aptitude and competence, and those steps shall ... include ...
    the taking up of references relating to character and experience.

    "(2) A member which receives an inquiry for a reference in respect of
    a person whom another member or appointed representative is
    proposing to appoint shall make full and frank disclosure of all
    relevant matters which are believed to be true to the other member or
    the representative."

    Scottish Amicable applied to Guardian Assurance for a reference and
    received a reply dated 12 November 1989 stating inter alia:

    "Mr. Spring held the position of Sales Manager until he was
    asked to leave in August of this year. His former superior has stated
    in writing that he was seen by some of the sales staff as a person who
    consistently kept the best leads for himself with little regard for the
    sales team that he supposedly was to manage; and his former superior
    has further stated that he is a man of little or no integrity and could not
    be regarded as honest. . . . Since the 1st January 1989, Messrs.
    Spring and Parker shared all their commission earnings on a 50:50
    basis and left owing the company some £12,000 in funding which to
    date has not been repaid. This matter is now in the hands of
    solicitors. The current lapse ratio is running at 18 per cent. and this
    is only for policies written since March of this year. Since their
    departure, we have found a serious case of mis-selling where the
    concept of 'best advice' was ignored and the policies sold yielded the
    highest commissions. Gre personnel have had to visit the investor to
    rectify the situation. There have been other cases where there has
    been bad advice but there is no current evidence to indicate whether
    it was deliberate or through ignorance."

    Scottish Amicable naturally declined to appoint Mr. Spring as one of
    its company representatives. Mr. Spring applied to two other companies for
    such an appointment, but each of them received from Guardian Assurance a
    reference in the same terms, which led to their refusing his application.

    - 2 -

    The reference was compiled by a Mrs. Debra Lee-Moore, who was
    assistant chief compliance officer of the fourth defendants ("Gre Assurance").
    She relied for the purpose principally upon information given to her by Mr.
    Siderfin. by a Mr. Beard, who was a member of a Gre Assurance compliance
    team which had paid a visit to Corinium in November 1989, and by a Mr.
    Dixon, who was senior sales consultant for Gre Assurance in Gloucester. The
    statement that Mr. Spring could not be regarded as honest came from Mr.
    Siderfin ("his former superior"), and that about a serious case of mis-selling
    came from Mr. Beard and Mr Dixon. The case in question involved a Mr.
    Fennell, to whom Mr. Spring had sought to sell a highly unsuitable policy
    which would have generated a very large commission for him. The trial judge
    found that in so doing Mr. Spring had acted incompetently, and not
    dishonestly with the object of securing a substantial commission. The trial
    judge further found in relation to the reference that Mrs. Lee-Moore had
    accurately stated what she had learnt from her sources of information and that
    she was not guilty either of malice or of negligence. He went on to find that
    neither Mr. Siderfin or Mr. Dixon had acted out of malice, in respect that
    each of them genuinely believed in the truth of the allegations he was making,
    hut that each of them had failed to exercise reasonable care in respect of the
    allegations through making them without carrying out a thorough investigation
    into their truth. Such an investigation, he found, would have shown that Mr.
    Spring had not acted dishonestly.

    Mr. Spring raised an action of damages against all tour defendants
    pleading causes of action in malicious falsehood, breach of contract and
    negligence. The trial judge, Judge Lever Q.C.. rejected the claim in
    malicious falsehood, following his finding that none of the persons involved
    in the giving of the reference had acted maliciously. As regards the claim for
    breach of contract he held that there was no contract between Mr. Spring and
    either Guardian Assurance or GRE Assurance and that there was not to be
    implied into the contract between Mr. Spring and Corinium a term that any
    reference given about him should be prepared with reasonable care. He found
    in favour of Mr. Spring, however, on the claim founded on negligence, with
    damages to be assessed. On appeal by the defendants his judgment was set
    aside by the Court of Appeal (Glidewell and Rose L.JJ. and Sir Christopher
    Slade) on 10 December 1992 ([1993] 2 All E.R. 273). Mr. Spring now
    appeals to your Lordships' House, but only on the issues concerned with
    negligence and with breach of contract.

    My Lords, if no reasons of policy intervened there might be much to
    be said for the view that Mr. Spring is entitled to succeed in his claim based
    on negligence, on the basis that it was reasonably foreseeable that damage to
    him would result if the reference were prepared without reasonable care and
    it thus incorrectly disparaged him. that there was proximity between him and
    those who prepared the reference, and that it would be fair, just and
    reasonable to impose a duty of care on the latter. This would, however,
    extend the ambit of liability in negligence for pure economic loss. In Hedley
    Byrne & Co. Ltd. v
    . Heller & Partners Ltd. [1964] AC 465 such liability

    - 3 -

    was held to exist in circumstances where a plaintiff has relied to his detriment
    upon a negligent misstatement by a defendant. In the present case there is no
    question of reliance by the plaintiff on the carelessly prepared reference. But
    in any event this is, in my opinion, a case in which the second stage of the
    test propounded by Lord Wilberforce in Anns v. Merton London Borough
    Council
    [1978] AC 728 properly comes into play. He there said, at p. 752:

    "Secondly, if the first question is answered affirmatively, it is
    necessary to consider whether there are any considerations which ought
    to negative, or to reduce or limit the scope of the duty or the class of
    person to whom it is owed or the damages to which a breach of it may

    give rise."

    In Yuen Kun Yeu v. Attorney-General of Hong Kong [1988] A.C. 175, I said.
    at p. 193:

    "The second stage of Lord Wilberforce's test in Anns v. Merton
    London Borough Council
    is one which will rarely have to be applied.
    It can arise only in a limited category of cases where, notwithstanding
    that a case of negligence is made out on the proximity basis, public
    policy requires that there should be no liability."

    I gave as an instance of such a case Rondel v. Worsley [1969] 1 AC 191
    dealing with the liability of a barrister for negligence in the conduct of
    proceedings in court. Hill v. Chief Constable of West Yorkshire [1989] A.C.
    53 was a case where the executor of the last victim of a serial murderer sued
    the Chief Constable on grounds of alleged negligence in failing to apprehend
    the murderer before he killed that particular victim. The claim failed on the
    basis that no duty of care had been made out. But in the course of my
    speech, concurred in by three of my colleagues. I said at p. 63 that the action
    was in any event precluded by considerations of public policy.

    In this present case the reference was defamatory of Mr. Spring, and
    so were the communications made for the purpose of its preparation by Mr.
    Siderfin and Mr. Dixon to Mrs. Lee-Moore. Mrs. Lee-Moore was under a
    duty to give the reference and Mr. Siderfin and Mr. Dixon were under a duty
    to make the communications to her which they did make. So an action in
    defamation by Mr. Spring against any of them or against their employers
    would have been defeated by the defence of qualified privilege unless Mr.
    Spring proved malice. He sought to do so for the purpose of his claim on
    grounds of malicious falsehood, but the trial judge found that he had failed in
    this. That finding was affirmed by the Court of Appeal, and no appeal against
    it is before your Lordships.

    The policy grounds which underlie the defence of qualified privilege
    in an action for defamation were thus stated by Lord Diplock in Horrocks v.
    Lowe [1975] A.C. 133, 149:

    - 4 -

    "My Lords, as a general rule English law gives effect to the
    ninth commandment that a man shall not speak evil falsely of his
    neighbour. It supplies a temporal sanction: if he cannot prove that
    defamatory matter which he published was true, he is liable in
    damages to whomever he has defamed, except where the publication
    is oral only, causes no damage and falls outside the categories of
    slander actionable per se. The public interest that the law should
    provide an effective means whereby a man can vindicate his reputation
    against calumny has nevertheless to be accommodated to the competing
    public interest in permitting men to communicate frankly and freely
    with one another about matters in respect of which the law recognises
    that they have a duty to perform or an interest to protect in doing so.
    What is published in good faith on matters of these kinds is published
    on a privileged occasion. It is not actionable even though it be
    defamatory and turns out to be untrue. With some exceptions which
    are irrelevant to the instant appeal, the privilege is not absolute but
    qualified. It is lost if the occasion which gives rise to it is misused.
    For in all cases of qualified privilege there is some special reason of
    public policy why the law accords immunity from suit - the existence
    of some public or private duty, whether legal or moral, on the part of
    the maker of the defamatory statement which justifies his
    communicating it or of some interest of his own which he is entitled
    to protect by doing so. If he uses the occasion for some other reason
    he loses the protection of the privilege."

    In my opinion the same grounds of public policy are applicable where
    the claim is based not on defamation as such but on negligence associated with
    the making or publication of an untrue statement, where the occasion on which
    that was done was a privileged one in the sense in which that expression is
    used in the context of defamation law. If liability in negligence were to
    follow from a reference prepared without reasonable care, the same adverse
    consequences would flow as those sought to be guarded against by the defence
    of qualified privilege. Those asked to give a reference would be inhibited
    from speaking frankly lest it should be found that they were liable in damages
    through not taking sufficient care in its preparation. They might well prefer,
    if under no legal duty to give a reference, to refrain from doing so at all.
    Any reference given might be bland and unhelpful and information which it
    would be in the interest of those seeking the reference to receive might be
    withheld.

    It appears that the issue which arises has only once been considered in
    this jurisdiction. That was in Lawton v. B.O.C. Transhield Ltd. [1987] 2 All
    E.R. 608, a decision of Tudor Evans J. A former employee of the defendants
    sued them in negligence on the basis of a reference which they had given to
    other employers who had engaged him temporarily, and who by reason of the
    reference had refused to make his employment permanent. Tudor Evans J.
    held that the defendants owed the plaintiff a duty of care in respect of the
    reference, but that it was honest, accurate and not negligently written, so that

    - 5 -

    the claim failed. In holding that the defendants were under a duty of care to
    the plaintiff Tudor Evans J. did not give any consideration to the possible
    relevance of the position in the law of defamation, particularly the defence of
    qualified privilege. The report does not indicate to what extent if at all, this
    matter was argued, and the only passage in the judgment which may touch
    upon it is this, at pp. 617-618:

    "The next point of counsel for the defendants is that there are policy
    reasons which should negative a duty of care in a case such as this.
    First, he says that the existence of a duty of care might inhibit an
    employer from giving a reference freely and frankly. But it is always
    open to an employer to protect himself with a disclaimer of
    responsibility, as the respondents did in Hedley Byrne. I can see no
    reason why a disclaimer cannot be so framed as to exclude a liability
    not only to the recipient but also to the subject of the reference and
    also to protect the actual servant who writes the reference, Mr.
    Uffendale in this case. As to the subject of the reference, I cannot see
    why an employer cannot effectively protect himself, either in the
    reference itself or by writing separately to the subject indicating a
    willingness to give a reference but stating that it will be given without
    responsibility."

    If Tudor Evans J. had received fuller argument on the point he might well
    have reached a different decision. As it is, I am of opinion that his decision
    upon it was wrong.

    The point has arisen more than once in New Zealand. In Bell-Booth
    Group Ltd. v. Attorney-General
    [1989] 3 N.Z.L.R. 148 the Ministry of
    Agriculture and Fisheries took part in a television broadcast the thrust of
    which was that a product of the plaintiffs called Maxicrop was ineffective for
    its claimed purpose of stimulating plant growth in agriculture and horticulture.
    The plaintiffs sued the Ministry and the Broadcasting Corporation of New
    Zealand in defamation and in negligence. The trial judge held that the claim
    in defamation failed because it had been proved that Maxicrop was indeed
    useless, thus establishing the defence of justification, but he sustained the
    claim in negligence against the Ministry, on the ground that it owed the
    plaintiffs a duty to inform the plaintiffs of the results of certain trials of the
    product before publishing and to consult them about the presentation of the
    results. The Court of Appeal set aside the decision on negligence. Sir Robin
    Cooke P., giving the judgment of the court, said, at pp. 155, 156:

    "Negligence in words can certainly give rise to liability if there
    is a duty of care. One need only mention Hedley Byrne. Breach of
    confidence is actionable, subject to special defences, however the duty
    of confidence arises (Attorney-General v. Wellington Newspapers Ltd.
    [1988] 1 N.Z.L.R. 129, 172). A contract may impose restraints on
    freedom of speech, subject no doubt to public policy defences. In some
    cases damages for breach of contract can extend to loss of publicity or

    - 6 -

    positive harm to reputation: see generally McGregor on Damages, 15th
    ed. (1988), para. 54, p. 32. But cases in the foregoing categories are
    all readily distinguishable. As far at least as the law of torts is
    concerned, the common understanding is almost certainly as expressed
    by Hallett J. in Foaminol Laboratories Ltd. v. British Artid Plastics
    Ltd.
    [1941] 1 All E.R. 393, 399: 'a claim for mere loss of reputation
    is the proper subject of an action for defamation, and cannot ordinarily
    be sustained by means of any other form of action.'

    "The closest reported cases which counsel for the appellant
    were able to find were two. First, Thurston v. Charles (1905) 21
    T.L.R. 659, where Walton J. gave damages for the tort of conversion
    on the basis that the conversion of a letter had resulted in damage to
    the plaintiff's reputation. (See further Gatley on Libel and Slander,
    8th ed. (1981), para. 895.) That case deals with the scope of damages
    for a tort that has undoubtedly been committed and does not touch the
    issue of judicial creation of a duty of care.

    "Second. Lawton v. B.O.C. Transhield Ltd. [1987] 2 All E.R.
    608, where Tudor Evans J. held that a former employer owed to its
    former employee a duty of care in giving a reference. That action
    tailed, however, because the reference was honest, accurate and not
    negligently written. The bearing of defamation law is not discussed in
    the judgment and the case is a difficult one: see notes by Mr. Philip
    Lewis (the editor of Gatley) in (1988) 17 I.L.J. (Recent Cases) 108
    and Mr. Andrew Demopoulos in (1988) 104 L.Q.R. 191. The latter
    writer is of the opinion, citing Horrocks v. Lowe [1975] A.C. 135, that
    Lawton 'involves an extension of the law of negligence which flies in
    the teeth of express statements that anything less than malice in the
    making of a privileged statement cannot engage liability.' Similar
    comments could be made in cases of justification or fair comment.

    The common law rules, and their statutory modifications,
    regarding defamation and injurious falsehood represent compromises
    gradually worked out by the courts over the years, with some
    legislative adjustments, between competing values. Personal reputation
    and freedom to trade on the one hand have to be balanced against
    freedom to speak or criticise on the other.

    "In the result the present rules are in broad terms well-known
    and reasonably clear. To an action for defamation truth is an absolute
    defence. Privilege, where applicable, is in a few areas an absolute but
    in most a qualified defence. Fair comment is a qualified defence
    subject to rather different rules. In injurious falsehood, on the other
    hand, the plaintiff has the burden of proving both falsity and malice.
    These evolved compromises may not draw the lines in places that will
    always be found generally acceptable in the community. Some argue.

    - 7 -

    for instance, for greater media freedom or licence; statutory changes
    have been recommended but not enacted. It is a controversial area.
    The important point for present purposes is that the law as to injury to
    reputation and freedom of speech is a field of its own. To impose the
    law of negligence upon it by accepting that there may be common law
    duties of care not to publish the truth would be to introduce a
    distorting element.

    "It was argued for the appellant, inter alia, that neither
    defamation nor slander of goods requires a background duty or breach;
    and if injury does or may involve those separate elements, there is no
    ground for depriving the plaintiff of a separate cause of action. That
    is really no more than a semantic point. The duty in defamation may
    be described as a duty not to defame without justification or privilege
    or otherwise than by way of fair comment. The duty in injurious
    falsehood may be defined as a duty not to disparage goods untruthfully
    and maliciously. In substance the appellant would add to these duties
    a duty in such a case as this to take care not to injure the plaintiffs
    reputation by true statements. All the arguments for the appellant,
    though put skilfully in various ways by counsel, reduce to that
    proposition. In our opinion, to accept it would be to introduce
    negligence law into a field for which it was not designed and is not
    appropriate."

    Later, at p. 157. he said:

    "For these reasons in our opinion justice does not require or
    warrant an importation of negligence law into this class of case.
    Where remedies are needed they are already available in the form of
    actions for defamation, injurious falsehood, breach of contract or
    breach of confidence."

    Although the case was directly concerned with a publication which was found
    to be true, it is clear that Sir Robin Cooke P. considered its ratio to cover
    situations which in the law of defamation would involve the defences of
    qualified privilege and fair comment. This becomes even clearer in South
    Pacific Mfg. Co. Ltd. v
    . New Zealand Security Consultants & Investigations
    Ltd.
    and the associated case of Monensen v. Laing [1992] 2 N.Z.L.R. 282.
    Both were striking out cases, involving claims in negligence against fire loss
    investigators, whose reports to insurers had resulted in the rejection of claims
    against them by the parties whose premises had been damaged by fire and in
    the second case a prosecution for arson. The Court of Appeal held that both
    actions should be struck out. Sir Robin Cooke P. said, at pp. 301-302:

    "So far then there are weighty considerations in favour of a
    duty in the kind of situation with which we are now dealing. But in
    the other scale there have to be put a series of formidable objections

    - 8 -

    arising because the duty asserted would cut across established
    principles of law in fields other than negligence.

    "The first is the one that weighed most with this Court in Bell-
    Booth,
    namely the defences available in a defamation action. Any
    shortcomings in the investigation of a fire assurance claim are unlikely
    in themselves to harm the insured. If there is real harm it will
    probably arise from the report by the investigators to the insurer. To
    the extent that the report reflects adversely on the insured by
    suggesting that he may have been guilty of arson the insured will
    prima facie have a cause of action in defamation. Initially at least, the
    publication may be very limited; yet it could have most serious
    consequences for the insured and warrant substantial general or special
    damages. These matters are all sufficiently elementary to require no
    authority apart perhaps from a reference to 28 Halsbury's Laws of
    England,
    4th ed., vol. 28 (1979) paras. 10, 18, 59 and 244. It will be
    a defence, however, if the investigators can prove the truth of the
    imputation. And more importantly in the present context, the report
    of the investigators made pursuant to their contractual duty to the
    insurer will be the subject of qualified privilege.

    "Qualified privilege can be defeated by proof of malice, but not
    by proof of mere negligence. The suggested cause of action in
    negligence would therefore impose a greater restriction on freedom of
    speech than exists under the law worked out over many years to cover
    freedom of speech and its limitations. By a side wind the law of
    defamation would be overthrown. That this is reality, not mere
    theory, is apparent from the various causes of action in defamation
    pleaded in the South Pacific case and from the plea in Laing v.
    Mortensen that the plaintiffs have suffered loss of reputation.
    Qualified privilege is conferred because of reciprocal duty and interest
    between a writer or speaker and those with whom he communicates.
    To cut down the practical scope of the protection would run counter
    to public policy in this field."

    Balfour v. Attorney-General [1991] 1 N.Z.L.R. 519 was a case
    concerning a school teacher whose employment prospects were seriously
    jeopardised by the presence in his file at the Department of Education of a
    memorandum stating that he was a long practising and blatant homosexual.
    He sued the Department claiming damages for breach of statutory duty and in
    negligence. The claim failed principally on the issue of causation, but Hardie
    Boys J., giving the judgment of the Court of Appeal, said in relation to the
    claim in negligence, at p. 529:

    "This second aspect comes perilously close to defamation. Any
    attempt to merge defamation and negligence is to be resisted. Both
    these branches of the law represent the result of much endeavour to

    - 9 -

    reconcile competing interests in ways appropriate to the quite distinct
    areas with which they are concerned, but not necessarily appropriate
    to each other: see Bell-Booth Group Ltd. v. Attorney-General [1989]
    3 N.Z.L.R. 148, 155-157. An inability in a particular case to bring
    it within the criteria of a defamation suit is not to be made good by the
    formulation of a duty of care not to defame. In Lawton v. B.O.C.
    Transhield Ltd.
    Tudor Evans J. held that an employer owed his former
    employer a duty of care in giving a reference co a prospective new
    employer, but his decision, which has been considerably criticised, was
    disapproved by this court in Bell-Booth."

    The views expressed in these three cases decided in a jurisdiction
    which is well known to be tender in its approach to claims in negligence
    involving pure economic loss are of great importance. The process of
    reasoning which they contain is in my opinion entirely sound and apt to be
    followed and applied in the present case. It is appropriate to add a reference
    to what was said by Lord Templeman in Downsview Nominees Ltd. v. First
    City
    Corporation Ltd. [1993] AC 295, 316:

    "The House of Lords has warned against the danger of
    extending the ambit of negligence so as to supplant or supplement
    other torts, contractual obligations, statutory duties or equitable rules
    in relation to every kind of damage including economic loss: see
    C.B.S. Songs Ltd. v. Amstrad Consumer Electronics Plc. [1988] A.C.
    1013. 1059: Caparo Industries Plc v. Dickman [1990] 2 A.C. 605 and
    Murphy v. Brentwood District Council [1991] 1 AC 398."

    Lord Templeman went on to describe the adverse consequences likely
    to flow from such an extension in the type of case before him. If the ambit
    of negligence were extended to cover the son of circumstances that exist in
    the present case, the consequences would be no less deleterious. The purpose
    of the defence of qualified privilege is to encourage frankness. Although in
    many instances the encouragement of frankness may operate only in the
    interests of the particular person to whom the communication is made, in
    many other instances it is necessary for the protection of the wider public. In
    the present case that is the position. The purpose of Lautro rule 3.5(2) is to
    protect the public against being exposed to the activities of company
    representatives selling insurance policies who may be dishonest or
    incompetent. The need for that has been amply demonstrated by the many
    instances of mis-selling that have recently been uncovered by Lautro. If there
    exists some suspicion that a person in respect of whom a reference has been
    asked for has not acted with complete integrity, the public interest requires
    that such suspicion should be communicated. If liability for negligence
    towards the subject of the reference were to be held to exist, there would be
    a temptation not to communicate the suspicion. In the present case it required
    a protracted trial with examination and cross-examination of witnesses to
    establish that in relation to the Fennell transaction Mr. Spring had on a

    - 10 -

    balance of probabilities acted incompetently but not dishonestly. An inquiry
    of comparable scope would not be within the powers of the ordinary
    employer. Faced with the possibility of an action of damages for negligence
    at the instance of the subject of the reference there are grounds for expecting
    that the employer would be inhibited from expressing frankly any reservations
    which he might have about the honesty of the employee. Another field of
    employment where frankness is of the greatest importance is that where
    contact with children is involved. It may be very difficult to prove that a
    person has interfered with young children, yet there may be grounds for
    suspecting it. The public interest demands that the existence of such suspicion
    should not be suppressed. In general, precisely the same grounds of public
    policy which make the defence of qualified privilege available in an action for
    defamation strongly favour the exclusion of an action of damages for
    negligence in similar situations. If it were to be held that such an action was
    to be available in relation to the giving of references in the employment field,
    there would be pressure to extend the principle to cover all situations where
    the defence of qualified privilege would be available if the action were one for
    defamation, and such extension could not logically be resisted. Thus the
    whole rationale of the defence of qualified privilege would be overthrown.
    While giving Mr. Spring a right of action in negligence would operate
    favourably in his interest and in those of other individuals who might find
    themselves in a like position, the adverse consequences from the point of view
    of public interest which would flow from doing so in my opinion militate
    strongly against it.

    My Lords, for these reasons I would affirm the decision of the Court
    of Appeal on the issue of negligence.

    As regard the claim for breach of contract. Glidewell L.J giving the
    judgment of the Court of Appeal, after observing that the trial judge had held
    that there was no contract between Mr. Spring and Guardian Assurance and
    that it had been argued that he was wrong in this, said ([1993] 2 All E.R.

    273. 295):

    "If he was (which we do not find it necessary to decide), the
    essential question is: did either the plaintiffs contract with Corinium
    or his contract with Guardian Assurance contain the implied term
    pleaded in the reamended statement of claim? This is set out in para
    8 of the pleading as:

    "... that, the Defendants and/or any of them would
    provide a reference which was full, frank and truthful and
    which was in any event prepared using reasonable care.

    "The judge, having referred to the decisions in Addis v.
    Gramophone Co. Ltd.
    [1909] AC 488 and The Moorcock (1889) 14
    P.D. 64, cited a sentence from the speech of Lord Edmund-Davies in
    Liverpool City Council v. Irwin [1976] 2 All E.R. 39 at p. 54 to the

    - 11 -

    effect that: 'The touchstone is always necessity and not merely
    reasonableness.' (Lord Edmund-Davies's emphasis.)

    "More recently Lord Bridge in Scally v. Southern Health and
    Social Services Board (British Medical Association, third party)
    [1992]
    1 A.C. 294 at 307 drew a clear distinction between what he described
    as -

    'the search for an implied term necessary to give
    business efficacy to a particular contract and the search, based
    on wider considerations, for a term which the law will imply
    as a necessary incident of a definable category of contractual
    relationship.'

    "In our view the judge directed himself entirely correctly that
    he had to decide whether a term of the kind pleaded was a necessary
    incident of either contract. He concluded that it was not. and thus that
    he would not imply such a term. In our view, if the law implied any
    term in the plaintiffs contract with either Guardian Assurance or
    Corinium in relation to this matter, such a term would go no further
    than to require the defendants to comply with their obligations under
    r. 3.5(2) of the Lautro Rules, i.e. to give a reference which made 'full
    and frank disclosure of all relevant matters which are believed to be
    true.' With such an obligation the judge of course held that the
    defendants complied."

    I respectfully agree and find it unnecessary to add anything.
    Accordingly, I would dismiss the appeal.

    LORD GOFF OF CHIEVELEY

    My Lords,

    The facts of the present case are set out in the judgment of the Court
    of Appeal delivered by Glidewell L.J., and have been summarised by my
    noble and learned friend Lord Keith of Kinkel. I gratefully adopt these
    accounts. I wish only to stress that the contract under which the appellant was
    engaged by Corinium was held by the learned judge to be a contract for
    services, as opposed to a contract of service; and that the judge held that
    there was no contractual relationship between the appellant and Guardian
    Assurance, for whom he was appointed a company representative. Although
    the judge's finding on this point was challenged by the appellant before the
    Court of Appeal, they did not find it necessary to express an opinion on it.
    The point was pursued again by the appellant before this House; but I too,
    though for rather different reasons, find it unnecessary to decide it.

    - 12 -

    The central issue in this appeal is whether a person who provides a
    reference in respect of another who was formerly engaged by him as a
    member of his staff (at this point I use a deliberately neutral term) may be
    liable in damages to that other in respect of economic loss suffered by him by
    reason of negligence in the preparation of the reference. That issue can. for
    the sake of convenience, be subdivided into two questions. (1) Whether the
    person who provided the reference prima facie owes a duty of care, in
    contract or tort, to the other in relation to the preparation of the reference.
    (2) If so, whether the existence of such a duty of care will nevertheless be
    negatived because it would, if recognised, pro tanto undermine the policy
    underlying the defence of qualified privilege in the law of defamation.

    I recognise, of course, that there is some interaction between these two
    questions. Even so, I think it is desirable to address the first question in
    isolation, not only for the sake of convenience, but also because the answer
    to that question may, in my opinion, cast light on the way in which the second
    question should be answered.

    As will appear hereafter, I have come to the conclusion that, on the
    facts of the present case, both Guardian Assurance and Corinium owed a duty
    of care to the appellant in respect of the preparation of the reference in
    question. In my opinion, the source of duty of care lies in the principle
    derived from Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C.
    465, viz. an assumption of responsibility by those companies to the appellant
    in respect of the reference, and reliance by the appellant upon the exercise by
    them of due care and skill in respect of its preparation. I am however
    concerned by the fact that the appellant's case was not advanced to the
    Appellate Committee on the basis of that principle. In these circumstances I
    would ordinarily have proposed that, before the appeal could be decided on
    a point which had not been argued, the parties should be given the opportunity
    of making submissions upon it. In the present case, however. I understand
    chat a majority of your Lordships are minded to allow the appeal in any event.
    proceeding upon a broader basis than the principle in Hedley Byrne. In these
    circumstances it would be pointless to delay the matter further, or to cause
    extra expense to the parties, by inviting further submissions. Even so. I
    propose to set out the reasoning upon which I, for my part, would allow the
    appeal. I feel it necessary to do so because I have come to the conclusion
    that, if the Hedley Byrne principle cannot here be invoked, or a contractual
    term to that effect cannot be relied upon by the appellant, the appeal ought to
    be dismissed; because in those circumstances it would be a simple case of the
    respondents having negligently made a statement damaging to the appellant's
    reputation. In such a case, in agreement with the reasoning of the Court of
    Appeal. I do not see how there can be a liability upon the respondents in
    negligence consistently with the policy of the law established in the law of
    defamation in relation to the principle of qualified privilege which, in the
    absence of malice, protects from liability the maker of a statement made on
    the privileged occasion. Even so, I wish to stress that the view which I shall

    - 13 -

    express in this opinion has been formed without the benefit of argument from
    counsel, and so to that extent must be regarded as being of limited authority.

    Whether prima facie such a duty of care is owed, in contract or in tort.

    In a series of well known cases, your Lordships' House has
    commended a gradual case by case approach to the development of the law of
    negligence, particularly in cases concerned with claims in respect of pure
    economic loss. Even so, one broad category of cases has been recognised in
    which there may be liability in negligence for loss of this kind. These are the
    cases which spring from, or have been gathered under the umbrella of, the
    landmark decision of your Lordships' House in the Hedley Byrne case.

    In Hedley Byrne, the claim lay against a bank which had gratuitously
    supplied a bank reference concerning a customer of the bank. The plaintiffs
    claimed that the bank had been negligent in the preparation of the reference,
    and that they had acted in reliance on the reference and had as a result
    suffered loss. The question for decision was whether, in such circumstances.
    the bank was liable to the plaintiffs in damages. It was held by your
    Lordships' House that in principle a duty of care was owed by the bank to the
    plaintiffs in respect of the preparation of the reference, but that on the facts
    the hank was protected from liability because the reference had been supplied
    under cover of a disclaimer.

    No doubt because of the facts of the case there under consideration, the
    case has been widely regarded as concerned with liability in damages in
    respect of a negligent misstatement. and also with liability in negligence for
    pure economic loss. This is undoubtedly true: and in both respects the
    decision broke new ground. But it is important not to lose sight of the
    principle which underlay the decision, which is of a wider importance. In his
    speech (with which Lord Hodson agreed) Lord Morris of Borth-y-Gest
    expressed himself as follows (at pp. 502-503):

    "My Lords, I consider that it follows and that it should now be
    regarded as settled that if someone possessed of a 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. The fact that the service is to be given by means of or by
    the instrumentality of words can make no difference. Furthermore,
    if in a sphere in which a person is so placed that others could
    reasonably rely upon his judgment or his skill or upon his ability to
    make careful inquiry, a person takes it upon himself to give
    information 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 upon it, then a duty of care will arise."

    Lord Devlin spoke in the following terms (at pp. 528 530):

    - 14 -

    "I think, therefore, that there is ample authority to justify your
    Lordships in saying now that the categories of special relationships
    which may give rise to a duty to take care in word as well as in deed
    are not limited to contractual relationships or to relationships of
    fiduciary duty, but include also relationships which in the words of
    Lord Shaw in Nocton v. Lord Ashburton are 'equivalent to contract,'
    that is, where there is an assumption of responsibility in circumstances
    in which, but for the absence of consideration, there would be a
    contract . . .

    "I shall therefore content myself with the proposition that wherever
    there is a relationship equivalent to contract, there is a duty of care.
    Such a relationship may be either general or particular. Examples of
    a general relationship are those of solicitor and client and of banker
    and customer. For the former Nocton v. Lord Ashburton has long
    stood as the authority and for the latter there is the decision of Salmon
    J. in Woods v. Martins Bank Ltd. which I respectfully approve. There
    may well be others yet to be established. Where there is a general
    relationship of this sort, it is unnecessary to do more than prove its
    existence and the duty follows. Where, as in the present case, what
    is relied on is a particular relationship created ad hoc. it will be
    necessary to examine the particular facts to see whether there is an
    express or implied undertaking of responsibility."

    The wide scope of the principle recognised in Hedley Byrne is reflected
    in the broad statements of principle which I have quoted. All the members
    of the Appellate Committee in this case spoke in terms of the principle resting
    upon an assumption or undertaking of responsibility by the defendant towards
    the plaintiff, coupled with reliance by the plaintiff on the exercise by the
    defendant of due care and skill. Lord Devlin, in particular, stressed that the
    principle rested upon an assumption of responsibility when he said, at p. 531
    that "the essence of the matter in the present case and in others of the same
    type is the acceptance of responsibility." For the purpose of the case now
    before your Lordships it is, I consider, legitimate to proceed on the same
    basis. Furthermore, although Hedley Byrne itself was concerned with the
    provision of information and advice, it is clear that the principle in the case
    is not so limited and extends to include the performance of other services. As
    for example the professional services rendered by a solicitor to his client (see.
    in particular. Lord Devlin at pp. 529-530). Accordingly where the plaintiff
    entrusts the defendant with the conduct of his affairs, in general or in
    particular, the defendant may be held to have assumed responsibility to the
    plaintiff, and the plaintiff to have relied on the defendant to exercise due skill
    and care, in respect of such conduct.

    For present purposes, I wish also to refer to the nature of the "special
    skill" to which Lord Morris referred in his statement of principle. It is, I
    consider, clear from the facts of Hedley Byrne itself that the expression
    "special skill" is to be understood in a broad sense, certainly broad enough to

    - 15 -

    embrace special knowledge. Furthermore Lord Morris himself, when
    speaking of the provision of a statement in the form of information or advice,
    referred to the defendant's judgment or skill or ability to make careful
    enquiry, from which it appears that the principle may apply in a case in which
    the defendant has access to information and fails to exercise due care (and
    skill, to the extent that this is relevant) in drawing on that source of
    information for the purposes of communicating it to another.

    The fact that the inquiry in Hedley Byrne itself was directed, in a case
    concerned with liability in respect of a negligent misstatement (in fact a
    reference), to whether the maker of the statement was liable to a recipient of
    it who had acted in reliance upon it, may have given the impression that this
    is the only way in which liability can arise under the principle in respect of
    a misstatement. But. having regard to the breadth of the principle as stated
    in Hedley Byrne itself. I cannot see why this should be so. Take the case of
    the relationship between a solicitor and his client, treated implicitly by
    Lord Morris and expressly by Lord Devlin as an example of a relationship to
    which the principle may apply. I can see no reason why a solicitor should not
    he under a duty to his client to exercise due care and skill when making
    statements to third parties, so that if he fails in that duty and his client suffers
    damage in consequence, he may be liable to his client in damages. The
    question whether a person who gives a reference to a third party may, if the
    reference is negligently prepared, be liable in damages not to the recipient but
    to the subject of the reference, did not arise in Hedley Byrne and so was not
    addressed in that case. That is the central question with which we are
    concerned in the present case; and I propose first to consider it in the context
    of an ordinary relationship between employer and employee, and then to turn
    to apply the relevant principles to the more complex relationships which
    existed in the present case.

    Prima facie (i.e. subject to the point on defamation, which I will have
    to consider later), it is my opinion that an employer who provides a reference
    in respect of one of his employees to a prospective future employer will
    ordinarily owe a duty of care to his employee in respect of the preparation of
    the reference. The employer is possessed of special knowledge, derived from
    his experience of the employee's character, skill and diligence in the
    performance of his duties while working for the employer. Moreover, when
    the employer provides a reference to a third party in respect of his employee,
    he does so not only for the assistance of the third party, but also, for what it
    is worth, for the assistance of the employee. Indeed, nowadays it must often
    be very difficult for an employee to obtain fresh employment without the
    benefit of a reference from his present or a previous employer. It is for this
    reason that, in ordinary life, it may be the employee, rather than a prospective
    future employer, who asks the employer to provide the reference; and even
    where the approach comes from the prospective future employer, it will (apart
    from special circumstances) be made with either the express or the tacit
    authority of the employee. The provision of such references is a service
    regularly provided by employers to their employees; indeed, references are

    - 16 -

    part of the currency of the modern employment market. Furthermore, when
    such a reference is provided by an employer, it is plain that the employee
    relies upon him to exercise due skill and care in the preparation of the
    reference before making it available to the third party. In these
    circumstances, it seems to me that all the elements requisite for the application
    of the Hedley Byrne principle are present. I need only add that, in the context
    under consideration, there is no question of the circumstances in which the
    reference is provided being, for example, so informal as to negative an
    assumption of responsibility by the employer.

    Where the relationship between the parties is that of employer and
    employee, the duty of care could be expressed as arising from an implied term
    of the contract of employment, i.e. that, if a reference is supplied by the
    employer for the employee, due care and skill will be exercised by him in its
    preparation. Such a term may be implied despite the absence of any legal
    obligation on the employer to provide a reference (as I understand to have
    been accepted by the parties in the present case), and may be expressed to
    apply even after the employee has left his employment with the employer.
    But in the present case this adds nothing to the duty of care which arises
    under the Hedley Byrne principle, and so may be applicable as a tortious duty,
    either where there is no contract between the parties, or concurrently with a
    contractual duty to the same effect.

    I wish however to add that, in considering the duty of care owed by
    the employer to the employee, although it can and should be expressed in
    broad terms, nevertheless the central requirement is that reasonable care and
    skill should be exercised by the employer in ensuring the accuracy of any facts
    which either (1) are communicated to the recipient of the reference from
    which he may form an adverse opinion of the employee, or (2) are the basis
    of an adverse opinion expressed by the employer himself about the employee.
    I wish further to add that it does not necessarily follow that, because the
    employer owes such a duty of care to his employee, he also owes a duty of
    care to the recipient of the reference. The relationship of the employer with
    the recipient is by no means the same as that with his employee; and
    whether, in a case such as this, there should be held (as was prima facie held
    to be so on the facts of the Hedley Byrne case itself) a duty of care owed by
    the maker of the reference to the recipient is a point on which I do not
    propose to express an opinion, and which may depend on the facts of the
    particular case before the court.

    At this point I must face the possibility that the conclusion which I
    have expressed may be thought to be inconsistent with the decision of the
    Privy Council in Mutual Life and Citizens' Assurance Co. Ltd. v. Evatt [1971]
    A.C. 793. There a claim was made against a company for damages arising
    from negligent advice gratuitously supplied by the company to the plaintiff in
    respect of a particular investment. The company was not engaged in the
    business of giving advice about investments; and it was held that a person
    who renders services gratuitously in circumstances where he is not engaged

    - 17 -

    in the business or profession of rendering such services owes no duty to
    exercise skill or competence, or indeed care, in so doing. Quite apart
    however from the fact that the decision, which is not binding on your
    Lordships' House, has attracted serious criticism, particularly in the light of
    the formidable dissenting opinion of Lord Reid and Lord Morris (both of
    whom were members of the Appellate Committee in Hedley Byrne), I do not
    consider that it stands in the way of the approach which I favour in the present
    case, since the skill of preparing a reference in respect of an employee falls
    as much within the expertise of an employer as the skill of preparing a bank
    reference fell within the expertise of the defendant bank in Hedley Byrne
    itself.

    I turn next to the particular circumstances of the present case, and I
    consider first the position of Guardian Assurance. It was they who provided
    the reference to Scottish Amicable. First, does it make any difference that the
    appellant was not their employee, but a company representative? I do not
    think so, I can see no material distinction from the position which would have
    arisen if they had been the appellant's employers. In particular, they had
    available to them special knowledge relating to the appellant's performance
    while their representative, and the reference must have been provided by them
    for the assistance of the appellant as their agent, as well as for the assistance
    of the recipient of the reference. It is true that the judge found that there was
    no contractual relationship between them and the appellant; but I am
    nevertheless satisfied that, on the Hedley Byrne principle, a duty of care
    would nevertheless arise in tort.

    There is however one particular matter to which I must refer. Rule
    3.5 of the Lautro Rules provides as follows:

    "(1) A person shall not be appointed as a company
    representative of a member unless the member has first taken
    reasonable steps to satisfy itself that he is of good character and of the
    requisite aptitude and competence, and these steps shall . . . . include
    . . . . the taking up of references relating to character and experience.

    "(2) A member which receives an enquiry for a reference in
    respect of a person whom another member or appointed representative
    is proposing to appoint shall make full and frank disclosure of all
    relevant matters which are believed to be true to the other member or
    the representative."

    I have to consider whether these rules militate against a duty of care owed by
    Guardian Assurance to the appellant in the present case. First of all, although
    the rule is, understandably, concerned with the interests of the member who
    receives it. and no doubt also the interests of his clients, I cannot see that this
    precludes a duty of care owed to the subject of the reference by the member
    who provides it. Indeed, the function of the second paragraph of the rule
    appears simply to be to ensure that disclosure is made of matters which

    - 18 -

    referees are sometimes reluctant to disclose. Although the point does not
    directly arise in the present case, I cannot see that this duty of disclosure as
    between members could of itself prevent the existence of a duty of care being
    owed by the provider of the reference to the recipient, on the Hedley Byrne
    principle; and a fortiori I cannot see that it precludes a duty of care owed by

    the provider to the subject of the reference.

    Finally, there is the point that, at the time when the reference was
    given, the appellant had ceased to be a company representative of Guardian
    Assurance. Again, I cannot see that this makes any difference. The appellant
    had ceased to hold this position shortly before the reference was required. I
    can see nothing in the circumstances to differentiate the situation from that
    where he was still a company representative at the relevant time.

    For these reasons, subject to the point on defamation, I am satisfied
    that Guardian Assurance owed a duty of care to the appellant in respect of the
    preparation of the reference. It is true that the preparation of the reference
    was carried out not by employees of Guardian Assurance, but by their parent
    company, G.R.E. Assurance (through their assistant chief compliance officer,
    Mrs. Debra Lee-Moore, assisted by Mr. Beard (a member of a G.R.E.
    Assurance compliance team) and a Mr. Dixon (a senior sales consultant for
    G.R.E. Assurance)) acting in collaboration with Corinium (through Mr.
    Siderfin, who had been appointed by Guardian Assurance, when they took
    Corinium over, to be chief executive of Corinium). I cannot see. however,
    how the delegation by Guardian Assurance to others of the performance of the
    service, in respect of which they had assumed responsibility to the appellant,
    can absolve them from their duty to the appellant to exercise due skill and
    care in the preparation of the reference. It follows that the negligence of Mr.
    Dixon and Mr. Siderfin in the preparation of the reference, as found by the
    judge, resulted in a breach of that prima facie duty by Guardian Assurance.

    In these circumstances, it is probably academic whether a similar duty
    was owed to the appellant by G.R.E. Assurance or Corinium. This was
    however a case where three companies, all members of the same group,
    collaborated in the preparation of the reference. In the circumstances of the
    present case, I am satisfied that Corinium, which not only collaborated in the
    preparation of the reference but was formerly in a contractual relationship
    with the appellant under a contract for services, with which the appellant's
    position as Guardian Assurance's company representative was evidently
    connected, must be taken also to have assumed responsibility to the appellant
    in respect of the preparation of the reference so provided. I cannot however
    see any basis upon which G.R.E. Assurance can be said to have assumed
    responsibility to the appellant in respect of the preparation of the reference,
    even though that company played the principal part in its preparation. In
    these circumstances I am prepared to hold prima facie that Corinium (as the
    employer of Mr. Siderfin) was under a duty of care to the appellant together
    with Guardian Assurance. Furthermore, on the facts as found by the judge.

    - 19 -

    it is plain that such a duty of care, if it exists, was broken by both of these
    defendants.

    It must not however be thought that, in so holding, I am expressing
    any opinion upon the ordinary position where a person providing the reference
    simply seeks information from an outsider, and the outsider is negligent in
    relation to the supply to the referee of the information so requested. Indeed,
    in the absence of assumption of responsibility (under a contract or otherwise)
    by the outsider to the subject of the reference, there will, for the reasons I
    have already given, be great difficulty in holding that there was any greater
    duty imposed upon him than that arising under the law of defamation, which
    I now turn to consider.

    (2) If so. whether such a duty will nevertheless be negatived because it
    would, if recognised, pro tanto undermine the policy underlying the defence
    of qualified privilege in the law of defamation.

    I think it desirable that I should first of all identify the nature of this
    policy objection. As I understand it, the objection is as follows. First of all.
    reference is made to the description of the policy underlying the defence of
    qualified privilege given by Lord Diplock in Horrocks v. Lowe [1975] A.C.
    133. 149. in the course of which he said:

    "The public interest that the law should provide an effective means
    whereby a man can vindicate his reputation against calumny has
    nevertheless to be accommodated to the competing public interest in
    permitting men to communicate frankly and freely with one another
    about matters in respect of which the law recognises that they have a
    duty to perform or an interest to protect in doing so. What is
    published in good faith on matters of these kinds is published on a
    privileged occasion. It is not actionable even though it be defamatory
    and turns out to be untrue."

    Second, it is suggested that the policy which underlies the defence of qualified
    privilege, viz. that in the relevant circumstances men should be permitted to
    communicate frankly and freely with one another about all relevant matters,
    prevents the recognition of a duty of care owed by the giver of the reference
    to the subject of the reference. In this connection, reliance is placed in
    particular upon decisions of the Court of Appeal of New Zealand in Bell-
    Booth Group Ltd. v
    . Attorney-General [1989] 3 N.Z.L.R. 148, and South
    Pacific Mfg. Co. Ltd. v
    . New Zealand Security Consultants and Investigations
    Ltd.
    and Mortensen v. Laing [1992] 2 N.Z.L.R. 282. In the former case. Sir
    Robin Cooke P. said, at p. 156:

    "The common law rules, and their statutory modifications,
    regarding defamation and injurious falsehood represent compromises
    gradually worked out by the Courts over the years, with some
    legislative adjustments, between competing values. Personal reputation

    - 20 -

    and freedom to trade on the one hand have to be balanced against
    freedom to speak or to criticise on the other.

    "In the result the present rules are in broad terms well-known and
    reasonably clear. To an action for defamation truth is an absolute
    defence. Privilege, where applicable, is in a few areas an absolute but
    in most a qualified defence. Fair comment is a qualified defence
    subject to rather different rules. In injurious falsehood, on the other
    hand, the plaintiff has the burden of proving both falsity and malice.
    These evolved compromises may not draw the lines in places that will
    always be found generally acceptable in the community. Some argue,
    for instance, for greater media freedom or licence; statutory changes
    have been recommended but not enacted. It is a controversial area.
    The important point for present purposes is that the law as to injury to
    reputation and freedom of speech is a field of its own."

    Now I for my part accept that, as stated by Hallett J. in Foaminol
    Laboratories Ltd. v. British Artid Plastics Ltd.
    [1941] 1 All E.R. 393. 399,
    "a claim for mere loss of reputation is the proper subject of an action for
    defamation, and cannot ordinarily be sustained by means of any other form of
    action." Furthermore, it is (with respect) understandable that, in the Bell-
    Booth
    case, the Court of Appeal of New Zealand should have rejected a claim
    in negligence against the New Zealand Ministry of Agriculture and Fisheries
    in respect of an alleged failure to inform the plaintiffs of the results of certain
    trials of a product of the plaintiffs, or to consult them about the presentation
    of the results, as a result of which trials the product was truthfully described
    as "ineffective" in a television broadcast; or that in the South Pacific Mfg. Co.
    and Mortensen cases the same court should have rejected claims in negligence
    against fire loss investigators, whose reports to insurers (by whom they were
    instructed) should have resulted in the rejection of claims by parties whose
    premises had been damaged by fire and, in one case, a prosecution for arson.
    In neither case was any question of assumption of responsibility to the
    plaintiffs before the court. A case which bears some similarity to the present
    case is Balfour v. Attorney-General [1991] 1 N.Z.L.R. 519. which was
    concerned with a school teacher whose file at the Department of Education
    contained a memorandum stating that he was a long practising and blatant
    homosexual, as a result of which his prospects of employment as a teacher
    were seriously prejudiced. However, the issue of assumption of responsibility
    does not appear to have been considered in that case, in which the claim
    appears to have failed primarily on the issue of causation.

    By way of contrast, in the English case of Lawton v. B.O.C.
    Transhield Ltd.
    [1987] 2 All E.R. 608. Tudor Evans J. held that an employer
    owed a duty of care to a former employee in respect of the preparation of a
    reference for him. However, on the facts of the case he held that there was
    no breach of duty; and in any event he gave no consideration to the impact of

    - 21 -

    the law of defamation upon his decision that a duty was owed by the
    employer.

    In these circumstances it is, I consider, necessary to approach the
    question as a matter of principle. Since, for the reasons I have given, it is my
    opinion that in cases such as the present the duty of care arises by reason of
    an assumption of responsibility by the employer to the employee in respect of
    the relevant reference, I can see no good reason why the duty to exercise due
    skill and care which rests upon the employer should be negatived because, if
    the plaintiff were instead to bring an action for damage to his reputation, he
    would be met by the defence of qualified privilege which could only be
    defeated by proof of malice. It is not to be forgotten that the Hedley Byrne
    duty arises where there is a relationship which is, broadly speaking, either
    contractual or equivalent to contract. In these circumstances, I cannot see that
    principles of the law of defamation are of any relevance.

    It is true that recognition of a duty of care to an employee in cases
    such as the present, based on the Hedley Byrne principle, may have some
    inhibiting effect on the manner in which references are expressed, in the sense
    that it may discourage employers from expressing views such as those which
    are encouraged by rule 3.5(2) of the Lautro Rules. For my part, however. I
    suspect that such an inhibition exists in any event. Employers may well, like
    many people, be unwilling to indulge in unnecessary criticism of their
    employees: hence the perceived necessity for rule 3.5(2). In all the
    circumstances, I do not think that we may fear too many ill effects from the
    recognition of the duty. The vast majority of employers will continue, as
    before, to provide careful references. But those who, as in the present case,
    fail to achieve that standard, will have to compensate their employees or
    former employees who suffer damage in consequence. Justice, in my opinion,
    requires that this should be done; and I, for my part, cannot see any reason
    in policy why that justice should be denied.

    For these reasons I would allow the appeal; but I would nevertheless
    remit the matter to the Court of Appeal to consider the issue of the extent to
    which the damage suffered by the appellant was caused by the breach of duty
    of the respondents.

    LORD LOWRY

    My Lords.

    I have had the advantage of reading in draft the speech of my noble
    and learned friend Lord Keith of Kinkel and I gratefully adopt his review of
    the facts and of the issues in dispute. I have also had the advantage of reading
    the speeches of my noble and learned friends Lord Goff of Chieveley, Lord
    Slynn of Hadley and Lord Woolf and, so far as concerns the issue of

    - 22 -

    negligence, I entirely agree with both their analysis of the cases which provide
    or have been thought to provide guidance on the main disputed question and
    their conclusions. I also agree with my noble and learned friend Lord Goff's
    interpretation of the Hedley Byrne case. While I would ordinarily be content
    simply to concur in the conclusion reached by my noble and learned friends,
    I wish, since the result of your Lordships' deliberations will be to reverse the
    decision of the Court of Appeal, to state as succinctly as I may my reasons for
    so concurring.

    The defendants have two main arguments. The first is that to confer
    on the plaintiff a cause of action in negligence would distort and subvert the
    law of defamation in cases where the defence relied on is one of qualified
    privilege, that is, where, on an occasion when he has either a duty to
    communicate information or a legitimate interest of his own to protect, the
    defendant in good faith and without malice defames the plaintiff. I believe
    that the answer to this argument is that a person owes a general duty, subject
    to the principles governing the law of defamation and to the relationship, if
    any, between the defamer and the defamed, not to defame any other person,
    whereas a liability based on negligent misstatement can exist only if (1)
    damage is foreseeable (and damage occurs) and (2) there is such proximity
    between the maker and the subject of the misstatement as will impose a duty
    of care on the former for the protection of the latter. The existence of that
    foreseeability and that proximity between the plaintiff and the defendant is a
    justification, not for extending the liability for defamation by dispensing with
    the need for malice, but for bringing into play a different principle of liability
    according to which, in a restricted class of situations, a plaintiff can rely on
    negligence as the ingredient of the defendant's conduct which is essential to
    the existence of that liability. I consider that in the instant case damage
    stemming from the defendants' careless misstatement when giving a reference
    was foreseeable and that the proximity between the defendants and the plaintiff
    imposed a duty of care on the former for the protection of the latter.

    The defendants' second argument (which in order that it may prevail,
    must be made to stand independently on its own feet) is that, even if one
    concedes foreseeability and proximity and even if it would otherwise be just
    and reasonable for the plaintiff to recover under the head of negligence, public
    policy dictates
    that the person who has been the subject of a negligent
    misstatement shall not recover. The argument is grounded on the proposition
    that the maker of the misstatement, provided he has acted in good faith, must,
    even if he has been negligent, be free to express his views in the kind of
    situation (including the giving of any reference) which is contemplated by the
    doctrine of qualified privilege which is part of the law of defamation.

    This argument falls to be considered on the assumption that, but for the
    overriding effect of public policy, a plaintiff who is in the necessary proximate
    relation to a defendant will be entitled to succeed in negligence if he proves
    his case. To assess the validity of the argument entails not the resolution of
    a point of law but a balancing of moral and practical arguments. This

    - 23 -

    exercise could no doubt produce different answers but, for my own part, I
    come down decisively on the side of the plaintiff.

    On the one hand looms the probability, often amounting to a certainty,
    of damage to the individual, which in some cases will be serious and may
    indeed be irreparable. The entire future prosperity and happiness of someone
    who is the subject of a damaging reference which is given carelessly but in
    perfectly good faith may be irretrievably blighted. Against this prospect is set
    the possibility that some referees will be deterred from giving frank references
    or indeed any references. Placing full reliance here on the penetrating
    observations of my noble and learned friend Lord Woolf, I am inclined to
    view this possibility as a spectre conjured up by the defendants to frighten
    your Lordships into submission. I also believe that the courts in general and
    your Lordships' House in particular ought to think very carefully before
    resorting to public policy considerations which will defeat a claim that ex
    hypothesi is a perfectly good cause of action. It has been said that public
    policy should be invoked only in clear cases in which the potential harm to the
    public is incontestable, that whether the anticipated harm to the public will be
    likely to occur must be determined on tangible grounds instead of on mere
    generalities and that the burden of proof lies on those who assert that the court
    should not enforce a liability which prima facie exists. Even if one should put
    the matter in a more neutral way. I would say that public policy ought not to
    he invoked if the arguments are evenly balanced: in such a situation the
    ordinary rule of law. once established, should prevail.

    In marshalling my thoughts on public policy I have drawn freely upon
    the argument in Rondel v. Worsley [1969] 1 AC 191 of Mr. Louis Blom-
    Cooper (now Sir Louis Blom-Cooper, Q.C.) whose submissions at p. 203.
    although not rewarded with success in that appeal, strike me as particularly
    appropriate in the context of the present case.

    As in so many situations in which a deterrent sanction is envisaged for
    something which may be said or written, your Lordships were predictably
    reminded of Article 10 of the European Convention for the Protection of
    Human Rights and Fundamental Freedoms. But, assuming that an action
    would otherwise lie for damages for negligent misstatement. I do not think
    that Article 10, a paramount and proper guardian of free speech, was intended
    to shield a negligent defendant in an action based on negligence any more than
    it would protect a malicious defendant from a well grounded claim in
    defamation. Freedom of speech, rightly prized in all civilised societies, is not
    to be identified with freedom to defame maliciously or to damage negligently.

    When I look again at Lautro Rules 3.5(2), it does not seem to me that
    the obligation of a referee to make "full and frank disclosure of all relevant
    matters which are believed to be true" is in any way incompatible with the
    existence of an obligation, owed to the referee's employee or agent, to
    exercise reasonable care in the giving of a reference. Indeed, it might without
    difficulty be implied that, in the interests of the recipient, a reference should

    - 24 -

    be a careful one as well as being full and frank. Rule 3.5(2) cannot be
    determinative of the existence of a duty owed by the referee to the subject of
    a reference or of the nature of that duty, if one exists.

    It is in the tradition of the English case-law method to decide this
    appeal on its facts and not to be deterred by reflecting on all the possible
    situations in which a reference might be called for. Even if it is debatable
    where the line should be drawn, I am confident that from the plaintiff's point
    of view this case falls on the right side of it. It is not asking too much to
    expect the referee to exercise reasonable care; to hold for the plaintiff in this
    appeal does not mean that the referee must guarantee the accuracy of a
    reference.

    So far as concerns other matters which have been discussed, including
    in particular the defendants' liability in contract, I will be content, having
    regard to my conclusion on the negligence issue, to remind myself of the
    felicitous reference to obiter dicta and the proverbial chickens of destiny made
    by Bowen L.J. in Cooke v. New River Company (1888) 38 Ch D 56 at p.
    71.

    For these reasons, and for the reasons in regard to negligence given by
    my noble and learned friends. I would allow this appeal and would remit the
    case to the High Court in order that damages may be assessed.

    I prefer this course to the alternative of sending the case back to the
    Court of Appeal, where Glidewell, L.J., delivering the judgment of the court
    said:

    "Mr Eady Q.C. argues that, even if negligence were established, it did
    not cause the damage alleged to the plaintiff. In the light of our
    decision to the effect that the defendants owed no duty of care, it is
    unnecessary to consider this argument further. We comment only that
    we would have been reluctant to disagree with the judge on this issue."

    Once the duty of care is held to exist and the defendants' negligence
    is proved, the plaintiff only has to show that by reason of that negligence he
    has lost a reasonable chance of employment (which would have to be
    evaluated) and has thereby sustained loss: McGregor on Damages 14th ed.
    paras. 276-278 and Chaplin v. Hicks [1911] 2 KB 786. He does not have
    to prove that, but for the negligent reference, Scottish Amicable would have
    employed him. In fact, the trial judge said:

    "I turn, finally, to the question of causation. On the face of it,
    causation seems plain. Because of the reference, which I have held
    constitutes a negligent misstatement, not only Scottish Amicable but
    Irish Life and National Financial Management refused to employ the
    plaintiff.

    - 25 -

    "Mr. Eady, however, argues that this is not the full story. The
    plaintiff, he points out, must prove that had Scottish Amicable received
    a reference which was not a negligent misstatement but one prepared
    with all reasonable care, then, on the facts of the case, they would
    have employed him. To this end he called further evidence from Mrs.
    Ruth Evans, Compliance officer at Scottish Amicable, who stated, on
    what Mr. Eady postulated as a hypothesis of the agreed facts in the
    case, that they would, in all probability, not have employed him.

    "This attempt to breach the chain of causation was, in my
    judgment, ingenious but flawed. The postulates were of the defendants'
    or Mr. Eady's own selection and excluded many other facts as were
    agreed or as I find proved in the case. To take a simple example,
    Mrs. Evans stated that the most serious factor was of the plaintiff
    attempting to advise on investments he was not fully familiar with.
    She was not asked to postulate what her conclusion might have been
    if, for example, as Mr. Livesey went to such pains to establish, the
    further fact was added that he had been given blanket authorisation to
    sell the defendants' products and was, of course, urged by the
    defendants so to do when, as I find, he had had only the sketchiest of
    training.

    "As I observed in argument, the only person capable of giving
    an authoritative answer to the hypothetical question posed would have
    been somebody in Mrs. Evans' position who had sat in this courtroom
    throughout the many days of evidence and heard all the facts about the
    plaintiff and his career at Corinium.

    "As it is, having done so myself, I can only say that, in my
    judgment, on balance, had the plaintiff received the careful and
    accurate reference he was entitled to, he would probably have obtained
    employment with one of these companies."

    There is, in my view, much to be said for the proposition that the
    judge's finding of fact on the issue of causation cannot be reversed. But I will
    not proceed on that basis, since the point was not the subject of argument
    before your Lordships.

    If the case is remitted to the trial judge and if, as appears likely, he
    awards damages (assuming of course that the plaintiff can prove loss), then
    his judgment can be appealed and the issue of causation, as well as that of
    amount, will remain open in the Court of Appeal.

    If, on the other hand, your Lordships were to send the case back to the
    Court of Appeal and that court were to decide causation in favour of the
    plaintiff, the case would then have to be sent back to the trial judge and he
    would have to evaluate the plaintiffs chances of employment in the event that
    the reference had been a proper one and assess the plaintiffs damages. His

    - 26 -

    judgment on damages could then be appealed by either side to the Court of
    Appeal.

    The argument in favour of now remitting this case to the Court of
    Appeal is, no doubt, that the proceedings could be terminated against the
    plaintiff without any assessment of damages if that court were to hold the trial
    judge's finding on causation to be perverse and were to decide that on no
    reasonable view couid the plaintiff be regarded as having suffered any loss by
    reason of the defendants' negligence. I consider such a result to be most
    unlikely and that is another reason in favour of sending the case directly to the
    trial judge, particularly since causation of damage is so closely linked to the
    issue of damages.

    LORD SLYNN OF HADLEY

    My Lords

    The facts of this case, the relevant statutory provisions relating to the
    sale of long term insurance and the self-regulatory scheme adopted by the Life
    Assurance and Unit Trust Regulatory Organisation ("Lautro") are fully and
    clearly set out in the judgment of Glidewell L.J. I do not therefore repeat
    them other than is necessary for the statement of my conclusions. I adopt the
    terminology of the Court of Appeal referring to the first defendant as
    "Guardian Assurance" and to the fourth defendant as "Gre Assurance". I
    accept, as did the judge and the Court of Appeal, that no distinction need be
    made between the second and third defendants (which were both subsidiaries
    of Guardian Assurance, itself a subsidiary of Gre Assurance) and I refer to the
    second and third defendants collectively as "Corinium."

    The Court of Appeal said that the issue "does the giver of a reference
    owe a duty of care to the subject of the reference (i) in giving or compiling
    the reference or (ii) in obtaining the information on which it is based'" was
    "the most difficult and controversial question in this appeal." That was no
    exaggeration. The Court of Appeal concluded that the question should be
    answered in the negative.

    The Court of Appeal began its reasoning by saying:

    "It is a commonplace that, if A (a former or present employer)
    gives B (a possible future employer a written or oral reference
    concerning C (an employee), [which] contains some untrue statement
    about C which damages his reputation, C can only succeed in an action
    against A in defamation if he can prove that A was actuated by malice.
    This has been the law for over 200 years because the courts have held
    it to be in the public interest that, in giving such a reference, A should

    - 27 -

    be encouraged to express his honest opinion, fully and frankly, about
    C without fear that he will be liable to C if something which he
    honestly believes to be true nevertheless is proved not to be true.
    Moreover, if A makes an untrue statement to B about C which
    damages C's business but not his reputation, C can sue A for damages
    for financial loss only if he can prove that A in making the statement
    was actuated by malice."

    One reason for this approach was said by Erle C.J. in Whiteley v.
    Adams [1863] 15 C.B.(N.S.) 392, 418, 143 E.R. 838 to be "that it is to the
    general interest of society that correct information should be obtained as to the
    character of persons in whom others have an interest. If every word which
    is uttered to the discredit of another is to be the ground of an action, cautious
    persons will take care that all their words are words of praise only, and will
    cease to obey the dictates of truth."

    To this end, as Lord Diplock stressed in Horrocks v. Lowe [1975]
    A.C. 135. 149-151, for the publisher of defamatory matter to lose his
    qualified privilege, where the law recognises that he has a duty to speak,
    "express malice" must be shown. The burden on the plaintiff to establish
    malice on the part of the defendant is a heavy one. It must be shown that he
    did not have a positive or honest belief in the truth of what he published, or,
    if he did believe it when uttered on a privileged occasion, that he "misused the
    occasion for some purpose other than that for which the privilege is accorded
    by the law" or was guilty of personal spite. As to a reckless publication Lord
    Diplock said:

    "If he publishes untrue defamatory matter recklessly, without
    considering or caring whether it be true or not, he is in this, as in
    other branches of the law, treated as if he knew it to be false. But
    indifference to the truth of what he publishes is not to be equated with
    carelessness, impulsiveness or irrationality in arriving at a positive
    belief that it is true." (page 150 B-C).

    It is thus clear that if a claim is made that a statement is defamatory
    it is only express malice which removes the protection of qualified privilege
    in a situation where the law recognises that the duty to speak frankly is, in the
    absence of malice, paramount.

    Does it follow, as the Court of Appeal considered, that no one can
    ever sue in negligence for a statement, written or oral and whatever the
    circumstances?

    Apart from the Court of Appeal's judgment the question is not without
    judicial decision. Thus in Lawton v. B.O.C. Transhield Ltd. [1987] 2 All
    E.R. 608, Tudor Evans J. held that an employer, who gave an employee on
    leaving an unfavourable reference, owed him a duty of care in compiling and
    giving the reference, but neither in the judgment, nor it seems in argument,

    - 28 -

    was anything said about the principle established in regard to defamation. In
    Foaminol Laboratories Ltd v. British Artid Plastics Ltd [1942] 2 All E.R. 393
    at page 399. Hallett J. said:

    "A claim for mere loss of reputation is the proper subject of an
    action for defamation, and cannot ordinarily be sustained by means of
    any other form of action."

    This, however, does not deal with the real issue in the present case. Of more
    direct relevance are two decisions of the Court of Appeal of New Zealand in
    Bell-Booth Group Ltd v. Attorney-General [1989] 3 N.Z.L.R. 148 and Balfour
    v
    . Attorney-General [1991] 1 N.Z.L.R. 519.

    In Bell-Booth the claim arose out of a television programme which
    described the company's product as being ineffective for the purpose for
    which it was sold. The claim was based primarily on an alleged defamation.
    The claim failed when the judge found that the statements were justified.
    There was. however, an alternative claim that the statements had been made
    negligently, arising from a failure to disclose the result of certain trials of the
    relevant product or to give the company an opportunity to comment. The trial
    judge upheld this claim. Sir Robin Cooke P., giving the judgment of the
    Court of Appeal setting aside the findings of a duty of care and of a breach
    of that duty, said, at p. 155:

    "The elaboration with which the duty has been defined, both by the
    judge and by counsel for the appellant, is more suggestive of contract
    than of tort. That may not be fatal. The suggested duty could
    possibly be refined as simply a duty to take reasonable care to
    safeguard the interests of the plaintiff. But where there is no authority
    in point, as is the position, it is of course material to consider whether
    it is just and reasonable that a duty of care of particular scope should
    he incumbent upon the defendant."

    The court concluded, at pp. 156-157:

    "The common law rules, and their statutory modifications,
    regarding defamation and injurious falsehood represent compromises
    gradually worked out by the courts over the years, with some
    legislative adjustments, between competing values. Personal reputation
    and freedom to trade on the one hand have to be balanced against
    freedom to speak or criticise on the other.

    "In the result the present rules are in broad terms well-known and
    reasonably clear. To an action for defamation truth is an absolute
    defence. Privilege, where applicable, is in a few areas an absolute but
    in most a qualified defence. Fair comment is a qualified defence
    subject to rather different rules. In injurious falsehood, on the other
    hand, the plaintiff has the burden of proving both falsity and malice.

    - 29 -

    These evolved compromises may not draw the lines in places that will
    always be found generally acceptable in the community. Some argue,
    for instance, for greater media freedom or licence; statutory changes
    have been recommended but not enacted. It is a controversial area.
    The important point for present purposes is that the law as to injury to
    reputation and freedom of speech is a field of its own. To impose the
    law of negligence upon it by accepting that there may be common law
    duties of care not to publish the truth would be to introduce a
    distorting element.

    The duty in defamation may be described as a duty not to defame
    without justification or privilege or otherwise than by way of fair
    comment. The duty in injurious falsehood may be defined as a duty
    not to disparage goods untruthfully and maliciously. In substance the
    appellant would add to these duties a duty in such a case as this to take
    care not to injure the plaintiff's reputation by true statements. All the
    arguments for the appellant, though put skilfully in various ways by
    counsel, reduce to that proposition. In our opinion, to accept it would
    be to introduce negligence law into a field for which it was not
    designed and is not appropriate.

    "For these reasons in our opinion justice does not require or warrant
    an importation of negligence law into this class of case. Where
    remedies are needed they are already available in the form of actions
    for defamation, injurious falsehood, breach of contract or breach of
    confidence. Accordingly the cross-appeal must be allowed, and the
    findings of duty of care and breach and the award of damages for
    negligence set aside."

    That decision was followed in Balfour which concerned the alleged
    duty of a government department to record information about a school teacher
    It is sufficient to quote from the headnote.

    "(ii). The allegation that there was a special relationship of proximity
    which imposed a duty to exercise care as to the accuracy of
    information recorded by the Department was in part perilously close
    to an allegation of defamation. Any attempt to merge that tort with
    negligence was to be resisted.

    (iii). Assuming that the necessary proximity existed, the question was
    whether in a particular circumstance such duty of care ought to be
    recognised. Whether one applied an incremental approach or a policy
    approach, there was no acceptable basis for recognising such a duty."

    The Court of Appeal in the present case concluded that:

    "In our view the decision in Bell-Booth Group Ltd v. Attorney -
    General
    represents the law of England. As a general proposition, in

    - 30 -

    our judgment the giver of a reference owes no duty of care in the tort
    of negligence to the subject of the reference. His duty to the subject
    is governed by and lies in the tort of defamation. If it were otherwise,
    the defence of qualified privilege in an action for defamation where a
    reference was given, or the necessity for the plaintiff to prove malice
    in an action for malicious falsehood, would be bypassed. In effect, a
    substantial section of the law regarding these two associated torts
    would be emasculated. It follows that in our judgment Tudor Evans J.
    was wrong in Lawton v. B.O.C. Transhield Ltd. to hold that the
    defendants in that case owed a duty of care. It appears from the report
    of that decision that there was no discussion during the hearing of the
    relationship between the torts of negligence and defamation."

    The rule in defamation has been, as the Court of Appeal said, long
    established. It is, however, no less clear that the rule was established before
    modern developments in the law of negligence following the decision of your
    Lordships' House in Donoghue v. Stevenson [1932] AC 562. A duty of care
    has been held to exist in a wide variety of situations which previously would
    not have been contemplated. There is, thus, no doubt that liability may arise
    for economic loss arising from a negligently made mis-statement where the
    statement is given to someone who relies on it and suffers loss, though this
    will usually arise where the giver of the statement knows that the person to
    whom it is given or some other person will rely on it for a specific purpose.
    Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] AC 465: Caparo
    Industries Plc. v. Dickman
    [1990] 2 AC 605; Ministry of Housing and
    Local Government v
    . Sharp [1970] 2 Q.B. 223; Smith v. Eric S. Bush [a
    firm] Harris v
    . Wyre Forest District Council [1990] 1 AC 831. These
    decisions do not directly cover the present case but they are a pointer as to
    what the principle should be. The position in English law being that there is
    no authority of your Lordships' House directly in point, it is open to your
    Lordships to decide the question as one of principle on an analysis of the tort
    of defamation and of the proper approach to considering whether a duty of
    care may exist when it has not been recognised before.

    As to this approach Lord Keith of Kinkel said in Governors of the
    Peabody Donation Fund v. Sir Lindsay Parkinson & Co. Ltd.
    [1985] A.C.
    210, 240:

    "The true question in each case is whether the particular defendant
    owed to the particular plaintiff a duty of care having the scope which
    is contended for, and whether he was in breach of that duty with
    consequent loss to the plaintiff."

    That leads to a narrowing of the issue as initially defined in the Court
    of Appeal. I do not think that one can or should ask: "Is it the law that the
    giver of a reference is always subject to a duty of care, actionable in

    - 31 -

    negligence if he breaches it?" Nor: "Is it the law that the giver of such a
    reference is never subject to such a duty of care?"

    On the approach indicated by Lord Keith it seems to me that the
    answer to both questions has to be in the negative and the answers do not
    resolve the real questions posed by him.

    The proper approach is further defined in Caparo Industries Plc. v.
    Dickman (supra) where the question was whether the auditors of a company
    owed a duty of care towards intending purchasers of shares in a company.

    Lord Bridge of Harwich said, at pp. 617-618:

    "... since the Anns case a series of decisions of the Privy Council
    and of your Lordships' House, notably in judgments and speeches
    delivered by Lord Keith of Kinkel, have emphasised the inability of
    any single general principle to provide a practical test which can be
    applied to every situation to determine whether duty of care is owed
    and. if so. what is its scope... What emerges is that, in addition to the
    foreseeability of damage, necessary ingredients in any situation giving
    rise to a duty of care are that there should exist between the party
    owing the duty and the party to whom it is owed a relationship
    characterised by the law as one of 'proximity' or 'neighbourhood' and
    that the situation should be one in which the court considers it fair,
    just and reasonable that the law should impose a duty of a given scope
    upon the one party for the benefit of the other. But it is implicit in the
    passages referred to that the concepts of proximity and fairness
    embodied in these additional ingredients are not susceptible of any
    such precise definition as would be necessary to give them untility as
    practical tests, but amount in effect to little more than convenient
    labels to attach to the features of different specific situations which, on
    a detailed examination of all the circumstances, the law recognises
    pragmatically as giving rise to a duty of care of a given scope. Whilst
    recognising, of course, the importance of the underlying general
    principles common to the whole field of negligence, I think the law has
    now moved in the direction of attaching greater significance to the
    more traditional categorisation of distinct and recognisable situations
    as guides to the existence, the scope and the limits of the varied duties
    of care which the law imposes. We must now, I think, recognise the
    wisdom of the words of Brennan J. in the High Court of Australia in
    Sutherland Shire Council v. Heyman (1985) 60 A.L.R. 1, 43-44,
    where he said: 'It is preferable, in my view, that the law should
    develop novel categories of negligence incrementally and by analogy
    with established categories, rather than by a massive extension of a
    prima facie duty of care restrained only by indefinable "considerations
    which ought to negative, or to reduce or limit the scope of the duty or
    the class of person to whom it is owed."'

    - 32 -

    Lord Jauncey of Tullichettle in the same case said :

    "Once foreseeability of likely harm from a careless statement
    has been established, it becomes necessary to examine the
    circumstances in and the purposes for which the statement was made
    in order to determine whether there are also present the further
    ingredients necessary to establish the requisite proximity of relationship
    between the maker of the statement and the person who has acted upon
    it."

    It has also to be borne in mind that in Downsview Nominees Ltd. v. First City
    Corporation Ltd.
    [1993] AC 295, 316 Lord Templeman said:

    "The House of Lords has warned against the danger of
    extending the ambit of negligence so as to supplant or supplement
    other torts, contractual obligations, statutory duties or equitable rules
    in relation to every kind of damage including economic loss. ..."

    It seems to me that on the basis of these authorities two questions
    therefore arise. The first is whether the nature of the tort of defamation and
    the tort of injurious falsehood is such that it would be wrong to recognise the
    possibility of a duty of care in negligence for a false statement. The second
    question is whether, independently of the existence of the other two torts, and
    taking the tests adopted by Lord Bridge of Harwich in Caparo, a duty of care
    can in any event arise in relation to the giving of a reference. If the answer
    to the first is no, and to the second yes, then it remains to consider whether
    in all the circumstances such a duty of care was owed in this case by an
    employer to an ex-employee.

    As to the first question the starting point in my view is that the
    suggested claim in negligence and the torts of defamation and injurious and
    malicious falsehood do not cover the same ground, as Mr. Tony Weir shows
    in his note in [1993] C.L.J. 376. They are separate torts, defamation not
    requiring a proof by the plaintiff that the statement was untrue (though
    justification may be a defence) or that he suffered economic damage, but
    being subject to defences quite different from those in negligence, such as the
    defence of qualified privilege which makes it necessary to prove malice.
    Malicious falsehood requires proof that the statement is false, that harm has
    resulted and that there was express malice. Neither of these involves the
    concept of a duty of care. The essence of a claim in defamation is that a
    person's reputation has been damaged; it may or not involve the loss of a job
    or economic loss. A claim that a reference has been given negligently is
    essentially based on the fact, not so much that reputation has been damaged,
    as that a job, or an opportunity, has been lost. A statement carelessly made
    may not be defamatory - a statement that a labourer is "lame," a secretary
    "very arthritic," when neither statement is true, though they were true of some
    other employee mistakenly confused with the person named.

    - 33 -

    I do not consider that the existence of either of these two heads of
    claim, defamation and injurious falsehood, a priori prevents the recognition
    of a duty of care where, but for the existence of the other two torts, it would
    be fair, just and reasonable to recognise it in a situation where the giver of a
    reference has said or written what is untrue and where he has acted
    unreasonably and carelessly in what he has said.

    The policy reasons underlying the requirement that the defence of
    qualified privilege is only dislodged if express malice is established do not
    necessarily apply in regard to a claim in negligence. There may be other
    policy reasons in particular situations which should prevail. Thus, in relation
    to a reference given by an employer in respect of a former employee or a
    departing employee (and assuming no contractual obligation to take care in
    giving a reference) it is relevant to consider the changes which have taken
    place in the employer/employee relationship, with far greater duties imposed
    on the employer than in the past, whether by statute or by judicial decision,
    to care for the physical, financial and even psychological welfare of the
    employee.

    As to the second question it is a relevant circumstance that in many
    cases an employee will stand no chance of getting another job, let alone a
    better job. unless he is given a reference. There is at least a moral obligation
    on the employer to give it. This is not necessarily true when the claim is laid
    in defamation even if on an occasion of qualified privilege. In the case of an
    employee or ex-employee the damage is clearly foreseeable if a careless
    reference is given; there is as obvious a proximity of relationship in this
    context as can be imagined. The sole question therefore, in my view, is
    whether balancing all the factors (Lord Bridge in Caparo) as to whether "the
    situation should be one in which the court considers it fair, just and reasonable
    that the law should impose a duty of a given scope upon the one party for the
    benefit of the other."

    Hedley Byrne does not decide the present case, but I find it
    unacceptable that the person to whom a reference is given about an employee
    X should be able to sue for negligence if he relies on the statement (and, for
    example, employs X who proves to be inadequate for the job) as it appears to
    be assumed that he can; but that X who is refused employment because the
    recipient relies on a reference negligently given should have no recourse
    unless he can prove express malice as defined by Lord Diplock in Horrocks
    v
    . Lowe [1975] A.C. 135, 149-151.

    In Balfour (supra) the Inspector who wrote the comment on the teacher
    'entirely unsuitable," giving detailed reasons, concluded "check file to make
    absolutely sure I have the right person then ring Mrs. Brocklesby and inform
    her." It seems to me extraordinary that, if the remarks were untrue about the
    named individual and written without malice (so that no claim lay in
    defamation) but that the teacher lost a job as a result, there should be no
    possibility for the employee to claim in negligence.

    - 34 -

    In Bell-Booth the New Zealand Court of Appeal emphasised that "to
    impose the law of negligence upon [the law as to injury to reputation and
    freedom of speech] by accepting that there may be common law duties of care
    not to publish the truth would be to introduce a distorting element" (emphasis
    added page 156 at line 40; see also at line 50 "true statements" and at page
    157 line 15 "this class of case" which seems to have the same element of a
    truthful statement in mind). This, however, in my view is not the issue. The
    question is whether there should be a liability where the statements negligently
    made are untrue or the opinions are unfounded even if honestly believed to be
    true or honestly held. If the statements alleged to have been carelessly given
    are true then the considerations adverted to by the New Zealand Court of
    Appeal would seem plainly to be right. They do not, however, to my mind
    apply in a situation where the statements are untrue.

    I do not accept the in terrorem arguments that to allow a claim in
    negligence will constitute a restriction on freedom of speech or that in the
    employment sphere employers will refuse to give references or will only give
    such bland or adulatory ones as is forecast. They should be and are capable
    of being sufficiently robust as to express frank and honest views after taking
    reasonable care both as to the factual content and as to the opinion expressed.
    They will not shrink from the duty of taking reasonable care when they realise
    the importance of the reference both to the recipient (to whom it is assumed
    that a duty of care exists) and to the employee (to whom it is contended on
    existing authority there is no such duty). They are not being asked to warrant
    absolutely the accuracy of the facts or the incontrovertible validity of the
    opinions expressed but to take reasonable care in compiling or giving the
    reference and in verifying the information on which it is based. The courts
    can be trusted to set a standard which is not higher than the law of negligence
    demands. Even if it is right that the number of references given will be
    reduced, the quality and value will be greater and it is by no means certain
    that to have more references is more in the public interest than to have more
    careful references.

    Those giving such references can make it clear what are the parameters
    within which the reference is given such as staling their limited acquaintance
    with the individual either as to time or as to situation. This issue does not
    arise in the present case but it may be that employers can make it clear to the
    subject of the reference that they will only give one if he accepts that there
    will be a disclaimer of liability to him and to the recipient of the reference.

    Nor does it follow that if a duty of care is recognised in some
    situations it must exist in all situations. It seems to me that for the purposes
    of deciding whether the law recognises the duty as being fair, just and
    reasonable there may be a difference between the situation where it is an
    employer or ex-employer who gives a reference and the situation where a
    reference is given by someone who has only a social acquaintance with the
    person the subject of the reference. There may be difficult situations in
    between but these will, as is the common practice, have to be worked out in

    - 35 -

    particular situations. That is really the purpose of the approach indicated by
    Lord Keith of Kinkel which I have set out above.

    In his article, to which the Court of Appeal in the present case ([1993]
    1 C.R. 412, 436) referred and with which they agreed, "Misleading
    References and Qualified Privilege" (1988) 104 L.Q.R. 191. 194
    Dr. Andrew Demopoulos writes that to have recourse to the "typical concepts
    employed in some of the leading cases on negligently caused economic and
    other loss ... for the purposes of establishing a duty of care in circumstances
    similar to those of Lawton v. B.O.C. Transhield Ltd. involves an extension of
    the law of negligence which flies in the teeth of express statements that
    anything less than malice in the making of a privileged statement cannot
    engage liability."

    I do not for my part consider that to recognise the existence of a duty
    of care in some situations when a reference is given necessarily means that the
    law of defamation has to be changed or that a substantial section of the law
    relating to defamation and malicious falsehood is "emasculated" (Court of
    Appeal [1993] 2 All E.R. p. 294j). They remain distinct torts. It may be that
    there will be less resort to these torts because a more realistic approach on the
    basis of a duty of care is adopted. If to recognise that such a duty of care
    exists means that there have to be such changes - either by excluding the
    defence of qualified privilege from the master/servant situation or by
    withdrawing the privilege where negligence as opposed to express malice is
    shown - then I would in the interests of recognising a fair, just and reasonable
    result in the master/servant situation accept such change.

    The precise relationship between the plaintiff and the four defendants
    has led to much argument. The judge accepted that the plaintiff had a contract
    with Corinium initially from 1987 as a self-employed salesman. By January
    1989 he had become an Assistant Branch Manager and in April 1989 he
    became Sales Director (Designate) and Office Manager, though the judge
    treated this as being under a contract for services rather than of service. The
    judge found that all four defendants were subject to the Lautro Rules but that
    Mr. Spring had no contract with either of the two Guardian companies, the
    first and fourth defendants, though when Corinium in 1988 became an
    appointed representative of Guardian Assurance for the purpose of the
    Financial Services Act 1986, the plaintiff as a self-employed representative of
    Corinium (as the judge found) became a company representative of Guardian
    Assurance, selling exclusively the insurance contracts of Guardian Assurance.
    The appellant in the Court of Appeal contended that the judge was wrong to
    hold that there was no contract between him and Guardian Assurance. The
    Court of Appeal found it unnecessary to decide that issue.

    For the purposes of the claim in negligence it does not seem to me
    necessary to consider the precise contractual relationship between the plaintiff
    and the four defendants. What is quite plain is that the four companies were
    working very closely together in relation to Mr. Spring's activities. It is a fact

    - 36 -

    that the plaintiff as a company representative of Guardian Assurance for the
    purpose of the Scheme, and as a person contractually bound to provide
    services for Corinium as Guardian Assurance's authorised representative, was
    performing services for Guardian Assurance whether as a matter of contract
    or of status. The trial judge accepted that the legal framework created in this
    case by the Lautro Rules consisted of five principles. He said they were:

    "1. No one can sell life assurance products without authorisation
    from a self-regulating organisation;

    1. Gre, all its subsidiaries and all its sales consultants are bound
      by the LAUTRO Rules; and

    2. Everybody knows that everybody else involved is also so
      bound;

    3. A company representative can act as such for only one
      company at a time;

    4. If he leaves that company he is unemployable in the industry
      without a reference which must be obtained from his former
      employers."

    A member of Lautro cannot appoint a person as a company
    representative unless he has, inter alia, taken up "references relating to
    character and experience" (rule 3.5(1)). By rule 3.5(2) "A member who
    receives an enquiry for a reference in respect of a person whom another
    member is proposing to appoint shall make full and frank disclosure of all
    relevant matters which are believed to be true to the other member." The
    judge further found that "the prime criterion by which the plaintiff's integrity
    and ethical standards would be judged would patently be the professional code
    of conduct set out in schedule 2 of the Lautro Rules." He was also satisfied
    that all the parties to the present case and Scottish Amicable to whom the
    reference was given knew of the legal framework created by these fives
    principles; they also knew of the provisions of rule 3.5.

    The reference asked for by Scottish Amicable and given by Guardian
    Assurance was written by a Mrs. Lee-Moore as an employee of Gre
    Assurance. It was based on information from other Gre Assurance
    employees, from the former Chief Executive of the Corinium companies,
    from Corinium's records, from a senior sales consultant and from a member
    of the compliance team of Gre Assurance. The reference given is set out in
    the Court of Appeal's judgment [1993] 2 All E.R. 297. The judge was
    satisfied that neither the writer of the reference nor those who gave the
    information were guilty of malice. Mrs. Lee-Moore was not negligent. As
    to parts of the reference the Judge said (p.49 of the transcript of his
    judgment):

    - 37 -

    "The statement about the lapse ratio is an accurate answer to a simple
    question: the statement about funding was accurate up to a point even
    though perhaps it did not tell the full story; the statement that the
    plaintiff had kept the best leads to himself was not justified by the
    evidence.

    "None of these elements, taken singly or together, would, in my
    judgment have precluded Scottish Amicable from appointing the
    plaintiff as its company representative in any event."

    The judge found, however, that the statement in the reference about the
    appellant's honesty and integrity were, even if believed to be true, given
    without there being the careful and accurate assessment of his qualities to
    which the plaintiff was entitled. "In my judgment, it was motivated by a
    leaping to a conclusion - of dishonesty and lack of integrity - careless of the
    true facts of the case."

    After a review of the authorities, the learned judge concluded that on
    the facts of the case a duty of care was owed to the plaintiff when the
    reference was given and that that duty had been broken. The reference was
    given in the name of Guardian Assurance but the judge accepted that the four
    companies were so closely associated that all were to be treated as owing a
    duty and as being responsible lor the reference. It was inevitable that the
    appellant would not be offered a job by the other insurance companies to
    whom such reference was given. In my opinion the learned judge was entitled
    to find, as he did. that there was here a sufficiently approximate relationship
    between the companies on whose behalf the reference was given; the damage
    was clearly foreseeable: and it is fair, just and reasonable in such an
    employment situation for the law to recognise a duty on the part of the giver
    of the reference, and the person who within the employer's organisation
    collates or provides information for the purpose of preparing the reference,
    to take reasonable care that the information was obtained and passed on with
    reasonable care. On this aspect of the case I think the judge was right: duty
    and breach were established.

    There was a further ground of appeal on the basis that even if
    negligence were established it did not cause the damage alleged by the
    plaintiff. The Court of Appeal in view of their decision did not consider this
    argument. They said, "We comment only that we would have been reluctant
    to disagree with the judge on this issue." the judge having found that there
    was the necessary causation.

    I think it would not be appropriate for your Lordships to decide this
    issue and the matter should be remitted to the Court of Appeal for them to
    reconsider it if, as I accept, the appeal on the issue of negligence otherwise
    succeeds.

    - 38 -

    There remains the question as to where there was a breach of duty in
    contract. Although the learned judge found that there was no contract
    between the appellant and Guardian Assurance, he really decided the claim in
    contract on the basis that no term to exercise reasonable care in the giving of
    a reference could be implied. Such a term was not necessary for the business
    efficacy of the contract (The Moorcock (1889) 14 PD 64 and Liverpool City
    Council v. Irwin
    [1977] AC 239, 266). It is not necessary in this case to
    decide the general question as to whether an employer has an implied duty to
    give a reference, though even if there is no universal duty to do so it would
    seem to me that contracts may exist when it is necessary to imply such a duty.
    That question does not arise because here there was an express duty under the
    Lautro Rules to give a reference, if the employer was asked by another
    member of Lautro, but, more importantly a reference was in fact given. The
    question is, thus, whether if a reference is given there is a duty to exercise
    reasonable care in giving it.

    It was known by all parties that a reference would have to be given
    under paragraph 3.5(2) of the rules. As between the members or persons
    subject to the Lautro Rules that requirement was to make, "full and frank
    disclosure of all relevant matters which are believed to be true to the other
    member or the [appointed] representative." There is no provision in that rule
    that reasonable care shall be taken in the making of such disclosure and it is
    not necessary to decide whether such a duty of reasonable care is to be
    implied as between the members of Lautro. The terms of the obligation in
    rule 3.5(2) as between members of Lautro do not exclude the possibility of a
    duty of care existing in the contract between the appellant and one or other of
    the companies by which he was employed. Accepting fully that the test is
    "necessity" rather than "reasonableness," it seems to me that in view of the
    fact that an employee could never get a job with another member or
    representative without a reference and that there was an obligation on the
    prospective employer to ask for one and for the former employer to give one
    that there was a duty to take reasonable care in giving the reference.

    There was undoubtedly a contract with Corinium as the judge found.
    Whether that was a contract of service or for services for present purposes in
    my view does not matter, though the title of the posts after the first
    appointment suggests that it was a contract of service. In the light of the
    relationship between these four companies I consider, on the judge's findings.
    (a) that it was an implied term of the contract of employment between the
    appellant and Corinium that Corinium would ensure that reasonable care was
    taken in the group of associated companies in the compiling and giving of the
    reference if it was asked for by a potential employer and (b) that Corinium
    was in breach of that implied term.

    The Court of Appeal did not express a view as to whether a contract
    also existed with Guardian Assurance although they found the argument that
    it did to be "persuasive." Since the issue of causation has to be remitted to
    the Court of Appeal, I would remit this question also on the basis that if there

    - 39 -

    is found to be a contract with Guardian Assurance a term is to be implied into
    it that reasonable care would be taken in the giving of the reference.

    I would accordingly allow the appeal and remit the case to the Court
    of Appeal for these two matters to be considered.

    LORD WOOLF

    My Lords.

    I have had the advantage of reading the speech of Lord Keith of
    Kinkel. It is my misfortune not to agree with his conclusion as to the
    outcome of this appeal. However. I gratefully adopt his description of the
    facts giving rise to this appeal and. like Lord Keith, I rely on the careful
    description of the facts which is contained in the judgment of the Court of
    Appeal given by Glidewell L.J. ([1993] 2 All E.R. 273).

    I am therefore able, from the outset, to focus on the important issues
    of principle to which this appeal gives rise. They are:

    1. Whether a person who suffers loss as a result of being the subject of
      an inaccurate reference is ever able to recover damages for that loss in an
      action for negligence or whether he is confined to seeking damages for
      defamation or injurious falsehood. (The difference in practice between an
      action for negligence and an action for defamation or injurious falsehood is
      that in an action based on defamation or injurious falsehood it will be
      necessary to establish that the person responsible for giving the reference was
      motivated by malice, while in the case of an action based on negligence it will
      he sufficient to establish that it was due to a lack of care in ascertaining the
      facts on which the reference is based on the part of the person giving the
      reference or those for whom he is responsible.)

    2. Whether, in the appropriate circumstances, in a contract for service or
      services a term can be implied requiring an employer to exercise due care in
      the preparation of a reference relating to a person who is, or has been, in his
      service.

    I do not consider it is of any significance whether Mr. Spring was
    employed by or acting under a contract for services with Corinium. Certain
    of the documents suggest he was self-employed and the judge held he was
    acting under a contract for service. However, this is wholly inconsistent with
    the nature of his role with the company, which was that of a sales director
    (designate) and office manager. However, whether he was a servant or self-
    employed, his activities in selling insurance policies would be as a company
    representative, subject to the Lautro Rules; and the person who was

    - 40 -

    responsible for compiling the reference. Mrs. Debra Lee-Moore, had
    delegated to others the task of collecting the information on which the
    reference was based. As a matter of convenience, I will treat him as an
    employee, but it should be appreciated that my views would be the same if he
    was acting under a contract for services.

    In order to determine these issues, it is not necessary to distinguish
    between the position of the two Guardian companies (the first and fourth
    respondents) or the two Corinium companies (the second and third
    respondents). Nor is it necessary, on my view of the outcome of this appeal,
    to make any distinction between the different relations which Mr. Spring had
    with the different respondents since all the respondents at the material time
    were part of a single group of companies and can be regarded as acting on
    behalf of each other.

    There is also an issue of causation as to Mr. Spring's alleged loss.
    However, as Mr. Eady Q.C. contends on behalf of the respondents, this is
    more appropriately determined by the Court of Appeal, by whom it has not,
    as yet, been considered.

    On 12 November 1989 when the reference was given. Mr. Spring was
    no longer engaged by Corinium. However, as his relationship with all the
    respondents arose out of his previous engagement with Corinium, the primary
    source of any liability is contractual rather than tortuous. This is a point made
    forcefully by Lord Bridge of Harwich in Scally and Others v. Southern Health
    and Social Services Board and Another
    [1992] 1 A.C. 294. at p. 302-304.
    Furthermore, in the employment field, there has always been a considerable
    overlap between claims based on an alleged breach of duty in contract and in
    tort, as is stated in Charlesworth and Percy on Negligence (8th ed.. para. 10-
    06):

    The relationship itself of master and servant is necessarily based upon
    contract but it has been the subject of some controversy in the past
    whether the common law duties, regarding the servant's safety, are
    contractual duties or lie in tort. Because of the closeness of the
    relationship between master and servant, as well as its very nature,
    there really can be no doubt today that a duty of care does arise under
    the law of tort, as expressed in Donoghue v. Stevenson [1932] A.C.
    562. In Davie v. New Merton Board Mills Ltd., Viscount Simonds
    considered that, although liability primarily was to be regarded as
    having arisen in tort, it could also be based on implied terms contained
    in the contract of employment."

    That statement was made in relation to the "servant's safety." It is equally
    applicable to duties owed in respect of a servant's welfare, which is what this
    appeal concerns. Nonetheless, in the circumstances of this case, it is more
    convenient to consider the position in negligence first, which is the order

    - 41 -

    adopted in the courts below. I therefore turn now to consider the possible
    cause of action in negligence.

    The claim based on negligence

    The claim here is in respect of economic loss. Before there can be a
    duty owed in respect of economic loss, it is now clearly established that it is
    important to be able to show foreseeability of that loss, coupled with the
    necessary degree of proximity between the parties. It is also necessary to
    establish that in all the circumstances it is fair, just and reasonable for a duty
    to be imposed in respect of the economic loss. Deferring for the moment
    consideration of the consequences of there being possible alternative causes
    of action of defamation and injurious falsehood and the related public policy
    considerations, there can really be no dispute that Mr. Spring can establish the
    necessary foreseeability and proximity.

    It is clearly foreseeable that if you respond to a request for a reference
    by giving a reference which is inaccurate, the subject of the reference may be
    caused financial loss. Where the reference is required by a prospective
    employer, the loss will frequently result from a failure to obtain that
    employment. The prospect of such loss is considerably increased if the
    reference relates to an applicant, like Mr. Spring, for a position as a company
    representative in an industry which is subject to a rule which is in equivalent
    terms to rule 3.5 of the Lautro Rules. That rule provides:

    "(1) A person shall not be appointed as a company representative of
    a member unless the member has first taken reasonable steps
    to satisfy itself that he is of good character and of the requisite
    aptitude and competence, and those steps shall . . . include . .
    . taking up of references relating to character and experience.

    "(2) A member which receives an inquiry for a reference in respect
    of a person whom another member or appointed representative
    is proposing to appoint shall make full and frank disclosure of
    all relevant matters which are believed to be true to the other
    member or the representative."

    His Honour Judge Lever, at first instance, accepted Mr. Spring's
    counsel's description of the reference as being "the kiss of death" to Mr.
    Spring's career in insurance. This was the inevitable consequence of the
    reference. The reference related to a time and was based upon events which
    occurred while Mr. Spring was working for Corinium and was engaged in
    selling policies issued by Guardian. The relationship between Mr. Spring and
    the respondents could hardly be closer. Subject to what I have to say
    hereafter, it also appears to be uncontroversial that if an employer, or former
    employer, by his failure to make proper inquiries, causes loss to an employee,
    it is fair, just and reasonable that he should be under an obligation to
    compensate that employee for the consequences. This is the position if an

    - 42 -

    employer injures his employee physically by failing to exercise reasonable
    care for his safety and I find it impossible to justify taking a different view
    where an employer, by giving an inaccurate reference about his employee,
    deprives an employee, possibly for a considerable period, of the means of
    earning his livelihood. The consequences of the employer's carelessness can
    be as great in the long term as causing the employee a serious injury.

    However, while the requirements which I have been considering are
    of importance, that importance should not be exaggerated for the reasons
    which were elegantly explained by Lord Oliver of Aylmerton in Carparo
    Industries Plc. v. Dickman
    [1990] 2 AC 605, 632-633, when he said:

    "The extension of the concept of negligence since the decision of this
    House in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964]
    A.C. 465 to cover cases of pure economic loss not resulting from
    physical damage has given rise to a considerable and as yet unsolved
    difficulty of definition. The opportunities for the infliction of
    pecuniary loss from the imperfect performance of everyday tasks upon
    the proper performance of which people rely for regulating their affairs
    are illimitable and the effects are far-reaching. A defective bottle of
    ginger beer may injure a single consumer but the damage stops there.
    A single statement may be repeated endlessly with or without the
    permission of its author and may be relied upon in a different way by
    many different people. Thus the postulate of a simple duty to avoid
    any harm that is, with hindsight, reasonably capable of being foreseen
    becomes untenable without the imposition of some intelligible limits to
    keep the law of negligence within the bounds of common sense and
    practicality. Those limits have been found by the requirement of what
    has been called a 'relationship of proximity' between plaintiff and
    defendant and by the imposition of a further requirement that the
    attachment of liability for harm which has occurred be 'just and
    reasonable.' But although the cases in which the courts have imposed
    or withheld liability are capable of an approximate categorisation, one
    looks in vain for some common denominator by which the existence
    of the essential relationship can be tested. Indeed it is difficult to
    resist a conclusion that what have been treated as three separate
    requirements are, at least in most cases, in fact merely facets of the
    same thing, for in some cases the degree of foreseeability is such that
    it is from that alone that the requisite proximity can be deduced, whilst
    in others the absence of that essential relationship can most rationally
    be attributed simply to the court's view that it would not be fair and
    reasonable to hold the defendant responsible. 'Proximity' is. no doubt,
    a convenient expression so long as it is realised that it is no more than
    a label which embraces not a definable concept but merely a
    description of circumstances from which, pragmatically, the courts
    conclude that a duty of care exists.

    - 43 -

    "There are, of course, cases where, in any ordinary meaning
    of the words, a relationship of proximity (in the literal sense of
    'closeness') exists but where the law, whilst recognising the fact of the
    relationship, nevertheless denies a remedy to the injured party on the
    ground of public policy. Rondel v. Worsley [1969] 1 AC 191 was
    such a case, as was Hill v. Chief Constable of West Yorkshire [1989]
    A.C. 53, so far as concerns the alternative ground that decision.
    But such cases do nothing to assist in the identification of those
    features from which the law will deduce the essential relationship on
    which liability depends and, for my part, I think that it has to be
    recognised that to search for any single formula which will serve as a
    general test of liability is to pursue a will-o'-the-wisp. The fact is that
    once one discards, as it is now clear that one must, the concept of
    foreseeability of harm as the single exclusive test - even a prima facie
    test - of the existence of the duty of care, the attempt to state some
    general principle which will determine liability in an infinite variety of
    circumstances serves not to clarify the law but merely to bedevil its
    development in a way which corresponds with practicality and common
    sense." (at p. 632)

    Lord Oliver of Aylmerton added, at pp. 635-636:

    "The damage which may be occasioned by the spoken or
    written word is not inherent. It lies always in the reliance by
    somebody upon the accuracy of that which the word communicates and
    the loss or damage consequential upon that person having adopted a
    course of action upon the faith of it. In general, it may be said that
    when any serious statement, whether it takes the form of a statement
    of fact or of advice, is published or communicated, it is foreseeable
    that the person who reads or receives it is likely to accept it as
    accurate and to act accordingly. It is equally foreseeable that if it is
    inaccurate in a material particular the recipient who acts upon it may
    suffer a detriment which, if the statement had been accurate, he would
    not have undergone. But it is now clear that mere foreseeability is not
    of itself sufficient to ground liability unless by reason of the
    circumstances it itself constitutes also the element of proximity (as in
    the case of direct physical damage) or unless it is accompanied by
    other circumstances from which that element may be deduced. One
    must, however, be careful about seeking to find any general principle
    which will serve as a touchstone for all cases, for even within the
    limited category of what for the sake of convenience, I may refer to
    as 'the negligent statement cases,' circumstances may differ infinitely
    and, in a swiftly developed field of law. there can be no necessary
    assumption that those features which have served in one case to create
    the relationship between the plaintiff and the defendant on which
    liability depends will necessarily be determinative of liability in the
    different circumstances of another case."

    - 44 -

    I therefore recognise that in a situation, such as this, where their
    Lordships are being asked to make a measured extension to the ambit of the
    law of negligence, the requirements to which both Lord Oliver and I have
    referred must be kept in proper perspective. I also agree and accept that it is
    preferable to define as precisely as possible the relevant circumstances before
    deciding whether a duty exists. Nonetheless, that the required degree of
    foreseeability and proximity undoubtedly exists in this case is of considerable
    significance in deciding the proper outcome of this appeal.

    In Hedley Byrne, their Lordships extended the circumstances giving
    rise to a duty of care so as to protect the recipient from an inaccurate
    reference in those situations where the relationship between the person giving
    and receiving the reference is " 'equivalent to contract,' that is, where there
    is an assumption of responsibility in circumstances in which, but for the
    absence of consideration, there would be a contract." In such a situation it is
    necessary to distinguish "between social and professional relationships and
    between those which are of a contractual character and those which are not."
    It may also "be material to consider whether the adviser is acting purely out
    of good nature or whether he getting his reward in some indirect form." (Per
    Lord Devlin [1964] A.C. at p. 529) Applying that guidance to the different
    situation of the relationship between the person giving and the person who is
    the subject of the reference, it is immediately clear that a distinction can be
    drawn between cases where the subject of the reference is an employee (I use
    that term hereafter to include a person engaged on a contract for services as
    well as a contract of service) or an ex-employee and where the relationship is
    social and has never been contractual. In the latter situation all that the person
    who is the subject of the reference may be able to rely on is the fact that the
    referee gave the reference. That I can well understand may not be considered
    sufficient to create the required degree of proximity. The proximity would be
    closer to that in Hedley Byrne, if the reference had been given by a purely
    social acquaintance at the request of the subject of the reference. While the
    request may or may not be sufficient to create the required proximity it can
    still be distinguished from the present class of case. Here the relationship is
    of a different order because there is or has been a contract of employment or
    services. Of course the period which elapses between the end of the
    engagement and the giving of the reference is capable of reducing the degree
    of proximity.

    In addition, the relationship is one where the employer should, as I
    have already indicated, appreciate that the terms of any reference which he
    gives could materially affect the ability of the subject of the reference to find
    alternative employment. Furthermore, in a contemporary employment context
    it is appropriate to regard the employer as obtaining an indirect benefit from
    giving a reference. Employers in industry, commerce and the professions are
    all dependent on the reciprocity which exists among employers as to the
    giving of references on prospective recruits. Without that reciprocity
    recruitment of staff would be more difficult. It would also directly affect an
    employer's ability to recruit staff if it became known that he was not prepared

    - 45-

    to assist those he has previously engaged by giving them references.
    Employees are unlikely to regard as attractive employment at the end of which
    they would find themselves without a reference.

    The duty imposed by the Lautro Rules is not for the protection of
    employees. It is for the protection of the public. An employee cannot
    therefore rely on the rules directly. However, they nonetheless demonstrate
    the importance now attached in the insurance industry to references being
    given and obtained. To be of value they need to be full, frank and. by
    implication, accurate references.

    Finally, no difficulty is created by the fact that before the reference
    was given the employment had come to an end. Mr. Spring was dismissed
    on 26 July 1989 and the reference which has resulted in these proceedings was
    the consequence of his seeking an appointment as a representative almost
    immediately thereafter on 2 August 1989. The reference was sent on 21
    November 1989 and, as Judge Lever said, "the inevitable happened." Mr.
    Spring was rejected first by Scottish Amicable and then by two other
    insurance companies. This all occurred within a reasonable time of the
    employment ending.

    I therefore now turn to examine the two factors which make the issues
    in this case difficult to resolve. The first of those factors is the existence of
    the alternative causes of action in defamation and injurious falsehood which
    are available to a person in Mr. Spring's position who believes he has been
    caused damage by an inaccurate reference. (I will treat both those alternative
    causes of action under the heading of defamation since it is their common
    characteristic that to succeed a plaintiff must prove malice which creates the
    difficulty.) The second factor is closely related to the first. It is the public-
    policy consequences which would follow from there being a remedy in
    negligence.

    The Defamation Issue

    There would be no purpose in extending the tort of negligence to
    protect the subject of an inaccurate reference if he was already adequately
    protected by the law of defamation. However, because of the defence of
    qualified privilege, before an action for defamation can succeed (or. for that
    matter, an action for injurious falsehood) it is necessary to establish malice.
    In my judgment the result of this requirement is that an action for defamation
    provides a wholly inadequate remedy for an employee who is caused damage
    by a reference which due to negligence is inaccurate. This is because it places
    a wholly disproportionate burden on the employee. Malice is extremely
    difficult to establish. This is demonstrated by the facts of this case.
    Mr Spring was able to establish that one of his colleagues, who played a part
    in compiling the information on which the reference was based, had lied about
    interviewing him, but this was still insufficient to prove malice. Without an
    action for negligence the employee may, therefore, be left with no practical

    - 46 -

    prospect of redress, even though the reference may have permanently
    prevented him from obtaining employment in his chosen vocation.

    If that the law provides a remedy for references which are inaccurate
    due to carelessness this would be beneficial. It would encourage the adoption
    of appropriate standards when preparing references. This would be an
    important advantage as frequently an employee will be ignorant that it is
    because of the terms of an inaccurate reference, of the contents of which he
    is unaware, that he is not offered fresh employment.

    The availability of a remedy without having to prove malice will not
    open the floodgates. In cases where the employee discovers the existence of
    the inaccurate reference, he will have a remedy if, but only if, he can
    establish, instead of malice, that the reason for the inaccuracy is the default
    of the employer, in the sense that he has been careless. To make an employer
    liable for an inaccurate reference, but only if he is careless, is, I would
    suggest, wholly fair. It would balance the respective interests of the employer
    and employee. It would amount to a development of the law of negligence
    which accords with the principles which should control its development. It
    would, in addition, avoid a rather unattractive situation continuing of a
    recipient of a reference, but not the subject of a reference, being able to bring
    an action for negligence. It would also recognise that while both in
    negligence and defamation it is the untrue statement which causes the damage,
    there is a fundamental difference between the torts. An action for defamation
    is founded upon the inaccurate terms of the reference itself. An action for
    negligence is based on the lack of care of the author of the reference.

    Notwithstanding the distinction between the two causes of action, it
    was the different principles which govern an action for damages for
    defamation which the Court of Appeal found to be fatal to the attempt of the
    appellant to establish that the respondents owed him a duty of care in respect
    of the accuracy of the contents of a reference. Glidewell L.J. expressed the
    Court of Appeal's approach by saying:

    "As a general proposition, in our judgment the giver of a reference
    owes no duty of care in the tort of negligence to the subject of the
    reference. His duty to the subject is governed by and lies in the tort
    of defamation. If it were otherwise, the defence of qualified privilege
    in an action for defamation where a reference was given, or the
    necessity for the plaintiff to prove malice in an action for malicious
    falsehood, would be bypassed. In effect, a substantial section of the
    law regarding these two associated torts would be emasculated."

    In coming to this conclusion the Court of Appeal were greatly
    influenced by the decision of the Court of Appeal of New Zealand in Bell-
    Booth Group Ltd. v. Attorney-General
    [1989] 3 N.Z.L.R. 148. That case did
    not involve the giving of a reference. It concerned a broadcast of a
    programme which was highly critical of the effectiveness of the principal

    - 47 -

    product marketed by the plaintiffs business and therefore of the plaintiff. At
    first instance the claim in defamation failed because a plea of justification
    succeeded. However, notwithstanding the truth of the alleged libel the
    plaintiff succeeded in its action against the Ministry of Agriculture and
    Fisheries on an alternative claim for negligence because of the Ministry's
    failure to disclose all the results of trials which it had conducted and because
    the Ministry had published its findings in an unreasonable and unfair manner.
    The Court of Appeal allowed the appeal and decided that the Ministry was not
    liable.

    The facts of the present case can be distinguished from those in the
    Bell-Booth case and I accept that the outcome of that case was correct. In
    particular, I agree with what was said in that case about it being inappropriate
    that there should be an action for damages for the publication of a true
    statement. The importance of the case arises, however, because of certain
    broad statements of principle which Sir Robin Cooke P. made in giving the
    judgment of the court which were followed by the Court of Appeal in this
    case. One of those statements, that is. that an action for negligence would act
    as a fetter on tree speech. I will deal with later. Now I have to address the
    following passage of the judgment of Sir Robin Cooke P.:

    "As tar at least as the law of torts is concerned, the common
    understanding is almost certainly as expressed by Hallett J. in
    Foaminal Laboratories Ltd. v. British Artid Plastics Ltd. [1941] 2 All
    F.R 393. 399: 'a claim for mere loss of reputation is the proper
    subject of an action for defamation, and cannot ordinarily be sustained
    by means of any other form of action.'

    "The closest reported cases which counsel for the appellant
    were able to find were two. First. Thurston v. Charles (1905) 21
    T.L.R. 659. where Walton J. gave damages for the tort of conversion
    on the basis that the conversion of a letter had resulted in damage to
    the plaintiffs reputation. (See further Gatley on Libel and Slander.
    8th ed. (1981), para. 895, pp. 392-393.) That case deals with the
    scope of damages for a tort that has undoubtedly been committed and
    does not touch the issue of judicial creation of a duty of care.

    "Second. Lawton v. B.O.C. Transhield Ltd. [1987] 2 All E.R.
    608. where Tudor Evans J. held that a former employer owed to its
    former employee a duty of care in giving a reference. That action
    failed, however, because the reference was honest, accurate and not
    negligently written. The bearing of defamation law is not discussed in
    the judgment and the case is a difficult one: see notes by Mr. Philip
    Lewis (the editor of Gatley) in (1988) 17 I.L.J. (Recent Cases) 108
    and Mr. Andrew Demopoulos in (1988) 104 L.Q.R. 191. The latter
    writer is of the opinion, citing Horrocks v. Lowe [1975] A.C. 135, that
    Lawton 'involves an extension of the law of negligence which flies in

    - 48 -

    the teeth of express statements that anything less than malice in the
    making of a privileged statement cannot engage liability.' Similar
    comments could be made in cases of justification or fair comment.

    "The common law rules, and their statutory modifications,
    regarding defamation and injurious falsehood represent compromises
    gradually worked out by the courts over the years, with some
    legislative adjustments, between competing values. Personal reputation
    and freedom to trade on the one hand have to be balanced against
    freedom to speak or criticise on the other.

    "In the result the present rules are in broad terms well-known
    and reasonably clear. To an action for defamation truth is an absolute
    defence. Privilege, where applicable, is in a few areas an absolute but
    in most a qualified defence. Fair comment is a qualified defence
    subject to rather different rules. In injurious falsehood, on the other
    hand, the plaintiff has the burden of proving both falsity and malice.
    These evolved compromises may not draw the lines in places that will
    always be found generally acceptable in the community. Some argue,
    for instance, for greater media freedom or licence: statutory changes
    have been recommended but not enacted. It is a controversial area.
    The important point for present purposes is that the law as to injury to
    reputation and freedom of speech is a field of its own To impose the
    law of negligence upon it by accepting that there may be common law
    duties of care not to publish the truth would be to introduce a
    distorting element.

    "It was argued for the appellant, inter alia, that neither
    defamation nor slander of goods requires a background duty or breach;
    and if injury does or may involve those separate elements, there is no
    ground for depriving the plaintiff of a separate cause of action. That
    is really no more than a semantic point. The duty in defamation may
    he described as a duty not to defame without justification or privilege
    or otherwise than by way of fair comment. The duty in injurious
    falsehood may be defined as a duty not to disparage goods untruthfully
    and maliciously. In substance the appellant would add to these duties
    a duty in such a case as this to take care not to injure the plaintiffs
    reputation by true statements. All the arguments for the appellant,
    though put skilfully in various ways by counsel, reduce to that
    proposition. In our opinion, to accept it would be to introduce
    negligence law into a field for which it was not designed and is not
    appropriate." (Emphasis added.)

    Since the Court of Appeal's decision in this case, two articles, in addition to
    those referred to by the President in the passage from his judgment which I
    have cited, have been published. Like the earlier articles I find them of
    considerable benefit. They are respectively by Tony Weir ([1993] C.L.J. 376)
    and Thomas Allen ((1994) 57 M.L.R. 111). While this is a gross over-

    - 49 -

    simplification of their careful consideration of the subject, it can be said in
    general that the earlier articles were in favour of the decisions in both Courts
    of Appeal and the more recent articles are more favourable to the appellant.
    The academic honours are therefore about even. However, I consider that a
    possible explanation for the difference of approach is that the later articles
    were dealing primarily with the facts of this case while the first two were
    dealing with the earlier authorities.

    The principal point which the appellant has to overcome in respect of
    the reasoning of the President is the fact that to allow an action for negligence
    would be to introduce a "distorting element" into the law of defamation, that
    is, into the area of law which deals with unjustified injury to reputation, which
    is an area of the law which up to now defamation has had to itself. I can well
    understand why the President should have made the comment that he did about
    the case which was before him where there was publication on television, but
    in the case of a reference there is unlikely to be other than limited publication.
    If there is any re-publication this is unlikely to give rise to an action for
    negligence since the recipient of the reference will neither owe a duty of care
    to the subject of the reference or. normally, be guilty of any lack of care in
    re-publishing the reference. The extent of any intrusion into the area of the
    law covered by defamation will therefore be circumscribed. The case is also
    very different in that the contents of the publication were true and I
    unreservedly accept that there can be no action for negligence if the statement
    is true.

    In the later cases of South Pacific Manufacturing Co. Ltd. v. New
    Zealand Security Consultants & Investigations Ltd.
    and Mortensen v. Laing
    [1992] 2 N.Z.L.R. 282, the President again considered the relationship
    between an action for defamation and negligence. These cases involved
    actions for negligence against fire-loss investigators, whose reports to the
    insurers had resulted in the rejection of claims by the plaintiffs whose
    premises were damaged by fire. To give an action for negligence in that
    situation the President considered would mean "by a side-wind the law of
    defamation would be overthrown" (at p. 302). Again, I would not quarrel
    with the decision to strike out these claims because as the President indicated
    "the report of the investigators [is] made pursuant to their contractual duty to
    the insurer. ... I would therefore have reservations as to whether there
    would be any duty owed to the plaintiffs in those cases. There is not the same
    proximity between the parties as there is in the case of a reference given by
    an employer concerning an employee. I therefore do not give the same weight
    to the President's comments as I would if they had been made in a context
    which was the same as or more analogous to the context which is being
    considered here. The President's approach is, however, a reminder of the
    importance of not readily extending the law of negligence into an area of law
    already covered by another tort. It would not, however, be right to treat his
    remarks as preventing the law of negligence in any circumstances overlapping
    the law of defamation. To do so would be to inject an undesirable rigidity
    into the law. Instead, in a case where an action in negligence would

    - 50 -

    otherwise be available, the approach should be to inquire whether justice
    requires that the additional cause of action in negligence should be available.
    In the Bell-Booth case the President said, at p. 517:

    "For these reasons in our opinion justice does not require or warrant
    an importation of negligence law into this class of case. Where
    remedies are needed they are already available in the form of action
    for defamation, injurious falsehood, breach of contract or breach of
    confidence."

    This statement is appropriately limited to the "class of case" with
    which the Court of Appeal in New Zealand was then concerned. As I have
    already indicated, I regard this case as being in a different class. The
    distinction between the class of cases is also important in relation to the
    comment of Hallett J. in Foaminol Laboratories Ltd. v. British Artid Plastics
    Ltd.
    [1941] 2 All E.R. 393, 399: "A claim for mere loss of reputation is the
    proper subject of an action for defamation, and cannot ordinarily be sustained
    by means of any other form of action . . . ," which the President cited. This
    appeal is not concerned with a claim for mere loss of reputation. What
    concerns Mr. Spring is his loss of an opportunity to obtain employment due
    to the negligence, as the judge found, in the preparation of the reference. I
    am afraid I do not accept the logic of the argument that to have an action for
    negligence will undermine the law of defamation. If this appeal is allowed,
    this will leave the law of defamation in exactly the same state as it was
    previously. Mr. Spring would not have succeeded in an action for
    defamation. Negligence has always been an irrelevant consideration (I am not
    referring to quantum of damages) and it will remain irrelevant in an action for
    defamation. In the present context the two causes of action are not primarily
    directed at the same mischief although they, admittedly, overlap. I have
    already indicated that an action for negligence is concerned with the care
    exercised in ascertaining the facts and defamation with the truth of the
    contents of what is published.

    This is also demonstrated by what would be the respective approaches
    to damages in an action based on defamation and negligence. In the case of
    defamation the primary head, but not the only head, of damages is as to the
    loss of reputation. In an action for negligence, on the other hand, the subject
    of the reference will be primarily interested in and largely limited to his
    economic loss. To prevent the law of negligence applying to the present
    situation, when it is otherwise fair and just that it should apply, by the
    imposition of a requirement to prove malice in effect amounts to transferring
    a defence which has been developed for one tort to another tort to which it has
    never been previously applied when it is inappropriate to do so.

    The historic development of the two actions has been quite separate.
    Just as it has never been a requirement of an action for defamation to show
    that the defamatory statement was made negligently, so, if the circumstances
    establish that it fair and just that a duty of care should exist, the person who

    - 51 -

    suffers harm in consequence of a breach of that duty should not have to
    establish malice, merely because that would be a requirement in an action for
    defamation. I can see no justification for erecting a fence around the whole
    of the field to which defamation can apply and treating any other tort, which
    can beneficially from the point of view of justice enter into part of that field,
    as a trespasser if it does so. The conclusive answer in the present context to
    applying the approach of the President is that it will, here, result in real
    injustice. It would mean that a plaintiff who would otherwise be entitled to
    succeed in an action for negligence would go away empty-handed because he
    could not succeed in an action for defamation. This cannot be a desirable
    result.

    Public Policy

    It would alter the situation, if it would be contrary to some identifiable
    principle of public policy for there to be a liability for negligence imposed on
    the giver of a negligent reference. If there were to be such a principle it
    would be an unusual one since, unless Hedley Byrne was wrongly decided, it
    would apparently apply to the negligent provider of a bad but not a good
    reference.

    The Courts of Appeal in New Zealand and in this country both
    considered that the necessary justification for excluding liability for negligence
    could be found in the defence of qualified privilege. In support of the
    importance of that defence Glidewell L.J. cited the powerful language of Lord
    Diplock in Horrocks v. Lowe [1975] A.C. 135, 150, and I would not seek to
    qualify that language in a case where a plaintiff is not in a position to establish
    that subject to questions of public policy the defendant would be liable to him
    for breach of a duty of care. When the defence of qualified privilege was
    established such a duty of care was not in contemplation. As Mr. Livesey
    Q.C. forcefully argued, it by no means follows that so far as references are
    concerned the same view should be taken of public policy as was taken when
    Whiteley v. Adams (1863) 15 C.B.(N.S.) 392 was decided.

    It is obviously in accord with public policy that references should be
    full and frank. It is also in accord with public policy that they should not be
    based upon careless investigations. In the case of references for positions of
    responsibility this is particularly important. That is confirmed by the Lautro
    Rules. It has also to be accepted that some referees may be more timid in
    giving full and frank references if they feel there is a risk of their being found
    liable for negligence. However, there is already such a possible liability in
    respect of a negligently favourable reference, so all that needs to be
    considered is the possible adverse consequences of a negligently unfavourable
    reference. For reasons to which I have already referred I consider there is
    little practical likelihood of no reference at all being given nowadays.
    Certainly this could not happen in the case of appointments to which the
    Lautro Rules apply.

    - 52 -

    However, the real issue is not whether there would be any adverse
    effect on the giving of references. Rather the issue is whether the adverse
    effects when balanced against the benefits which would flow from giving the
    subject a right of action sufficiently outweigh the benefits to justify depriving
    the subject of a remedy unless he can establish malice. In considering this
    issue it is necessary to take into account contemporary practices in the field
    of employment; the fact that nowadays most employment is conditional upon
    a reference being provided. There are also the restrictions on unfair dismissal
    which mean that an employee is ordinarily not capable of being dismissed
    except after being told of what is alleged against him and after he has been
    given an opportunity of giving an explanation. This is also the widespread
    practice, especially in the Civil Service, of having annual reports which the
    subject is entitled to see - which practice, apparently even in an ongoing
    employment situation, is not defeated by any lack of candour. There is now
    an openness in employment relationships which did not exist even a few years
    ago.

    There is also the advantage, already referred to. of it being appreciated
    that you cannot give a reference which could cause immense harm to its
    subject without exercising reasonable care.

    A further consideration mentioned by the President is the undesirability
    of infringing freedom of speech. This is a consideration as least as important
    to the common law as it is under the international coventions by which it is
    also protected. Here it is necessary to bear in mind that, as is the case with
    all fundamental freedoms, the protection is qualified and not absolute.
    Freedom of speech does not necessarily entitle the speaker to make a
    statement without exercising reasonable care. Freedom of speech has to be
    balanced against the equally well recognised freedom both at common law and
    under the conventions that an individual should not be deprived of the
    opportunity of earning his livelihood in his chosen occupation. A
    development of the law which does no more than protect an employee from
    being deprived of employment as a result of a negligent reference would fully
    justify any limited intrusion on freedom of speech.

    When I weigh these considerations I find that public policy comes
    down firmly in favour of not depriving an employee of a remedy to recover
    the damages to which he would otherwise be entitled as a result of being a
    victim of a negligent reference.

    Under this head there remains to be considered whether it is preferable
    for the law in this area to be developed by Parliament or by the courts. It is
    an area of law where previous decisions of the courts have already clearly
    identified the tests which should be applied in deciding whether the law should
    be developed. It is also an area where a case-by-case approach is particularly
    appropriate and so as happened in Hedley Byrne it appears to me desirable for
    the courts to provide the remedy which I believe is clearly required.

    - 53 -

    The Claim Based on the Breach of Contract

    As I indicated earlier it is possible to approach this appeal as being
    primarily one involving a contractual issue. This was the preferred approach
    of Lord Bridge of Harwich in Scally v. Southern Health and Social Services
    Board
    [1992] 1 A.C. 294, in a speech, with which other members of the
    House agreed, from which I obtained singular assistance. In that case. Lord
    Bridge stated the obverse of the proposition that I have previously advanced
    when he said "if a duty of the kind in question was not inherent in the
    contractual relationship, I do not see how it could possibly be derived from
    the tort of negligence" (at p. 303). In Scally it was decided that where a
    contract of employment negotiated between employers and a representative
    body contained a particular term conferring on an employee a valuable
    contingent right to a pension of the benefit of which he could not be expected
    to be aware unless the term was brought to his attention, there was an implied
    obligation on the employer to take reasonable steps to publicise that term.
    Accordingly, when the employer failed to notify the employee of his pension
    rights, which were therefore lost, he was entitled to recover damages for
    breach of contract in respect of that loss.

    In the course of his speech. Lord Bridge drew a distinction "between
    the search for an implied term necessary to give business efficacy to a
    particular contract and the search, based on wider considerations, for a term
    which the law will imply as a necessary incident of a definable category' of
    contractual relationship." He also referred to the difficulty which would arise
    if the implied term "must necessarily be too wide in its ambit to be acceptable
    as of general application". He indicated that he believed that "this difficulty
    is surmounted if the category of contractual relationship in which the
    implication will arise is defined with sufficient precision." (at p. 307)

    Lord Bridge then proceeded to define the situation on the basis of the
    relationship of employer and employee where the circumstances he specified
    existed. As 1 understand the Scally case, it recognises that, just as in the
    earlier authorities the courts were prepared to imply by necessary implication
    .1 term imposing a duty on an employer to exercise due care for the physical
    well being of his employees, so in the appropriate circumstances would the
    court imply a like duty as to his economic well being, the duty as to his
    economic well being giving rise to an action for damages if it is breached.

    Here, it is also possible to specify circumstances which would enable
    a term to be implied. The circumstances are:

    (i) The existence of the contract of employment or services.

    (ii) The fact that the contract relates to an engagement of a class
    where it is the normal practice to require a reference from a
    previous employer before employment is offered.

    - 54 -

    (iii) The fact that the employee cannot be expected to enter into that
    class of employment except on the basis that his employer will,
    on the request of another prospective employer made not later
    than a reasonable time after the termination of a former
    employment, provide a full and frank reference as to the
    employee.

    This being the nature of the engagement, it is necessary to imply a
    term into the contract that the employer would, during the continuance of the
    engagement or within a reasonable time thereafter, provide a reference at the
    request of a prospective employer which was based on facts revealed after
    making those reasonably careful inquiries which, in the circumstances, a
    reasonable employer would make.

    In this case Mr. Spring's employers were in breach of that implied
    term. Although the person actually writing the reference was not negligent,
    she delegated the task of ascertaining the facts to others, and as is the case
    with the employer's duty to exercise reasonable care for the safety of his
    employee, the employer cannot escape liability by so delegating his
    responsibility.

    It only remains for me to underline what I anticipate is already clear,
    that is. that the views which I have expressed are confined to the class of case
    with which I am now dealing. Some of the statements I have made I
    appreciate could be applied to analogous situations. However. I do not intend
    to express any view either way as to what will be the position in those
    analogous situations. I believe that they are better decided when, and if, a
    particular case comes before the court. This approach can lead to uncertainty
    which is undesirable. However, that undesirable consequence is in my view
    preferable to trying to anticipate the position in relation to other situations
    which are not the subject matter of this appeal.

    1 would allow this appeal and remit the case to the Court of Appeal so
    that that court can deal with the question of causation.

    - 55 -


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