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You are here: BAILII >> Databases >> United Kingdom House of Lords Decisions >> Hedley Byrne & Co Ltd v Heller & Partners Ltd [1963] UKHL 4 (28 May 1963) URL: http://www.bailii.org/uk/cases/UKHL/1963/4.html Cite as: [1963] 1 Lloyd?s Rep 485, [1964] AC 465, [1963] 3 WLR 101, [1963] 2 All ER 575, [1963] UKHL 4 |
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Parliamentary
Archives,
HL/PO/JU/4/3/ 1107
HOUSE OF LORDS
HEDLEY BYRNE & COMPANY LIMITED
v.
HELLER & PARTNERS LIMITED
28th May, 1963.
Lord Reid
Lord
Reid
Lord Morris of Borth-y-Gest
Lord Hodson
Lord
Devlin
Lord Pearce
my lords,
This case
raises the important question whether and in what circumstances
a
person can recover damages for loss suffered by reason of his
having
relied on an innocent but negligent misrepresentation. I
cannot do better
than adopt the following statement of the case
from the judgment of
McNair, J. :
"
This case raised certain interesting questions of law as to the
liability
" of bankers giving references as to the
credit-worthiness of their
" customers. The plaintiffs are a
firm of advertising agents. The
" defendants are merchant
bankers. In outline, the plaintiffs' case
" against the
defendants is that, having placed on behalf of a client,
"
Easipower Limited, on credit terms substantial orders for
advertising
" time on television programmes and for
advertising space in certain
" newspapers on terms under
which they, the plaintiffs, became per-
" sonally liable to
the television and newspaper companies, they
" caused
inquiries to be made through their own bank of the defendants
"
as to the credit-worthiness of Easipower Limited who were customers
of
" the defendants and were given by the defendants
satisfactory
" references. These references turned out not to
be justified, and the
" plaintiffs claim that in reliance on
the references, which they had
" no reason to question, they
refrained from cancelling the orders so
" as to relieve
themselves of their current liabilities."
The
Appellants, becoming doubtful about the financial position of
Easi-
power, got their bank to communicate with the Respondents
who were
Easipower's bankers. This was done by telephone and the
following is
a contemporaneous note of the conversation which both
parties agree is
accurate: —
"
Heller & Partners, Ltd. Minute of telephone conversation. Call
"
from National Provincial Bank Ltd., 15 Bishopsgate, E.C.2. 18.8.58.
"
Person called: L. Heller, re Easipower, Ltd. They wanted to know
"
in confidence, and without responsibility on our part, the respect-
"
ability and standing of Easipower, Ltd., and whether they would be
"
good for an advertising contract for £8,000 to £9,000. I
replied, the
" company recently opened an account with us.
Believed to be
" respectably constituted and considered good
for its normal business
" engagements. The company is a
subsidiary of Pena Industries, Ltd.,
" which is in
liquidation, but we understand that the managing director,
"
Mr. Williams, is endeavouring to buy the shares of Easipower, Ltd.,
"
from the liquidator. We believe that the company would not under-
"
take any commitments they are unable to fulfil."
Some
months later the Appellants sought a further reference, and on
7th
November, 1958, the city office of the National Provincial
Bank Limited
wrote to the Respondents in the following terms: —
"
Dear Sir, We shall be obliged by your opinion in confidence as
"
to the respectability and standing of Easipower Ltd., 27, Albemarle
"
Street, London, W.1, and by stating whether you consider them
"
trustworthy, in the way of business, to the extent of £100,000
per
" annum advertising contract. Yours faithfully,"
2
On 11th November, 1958, the Respondents replied as follows: —
" CONFIDENTIAL
" For your private use and without responsibility on the part of this
" Bank or its officials.
"
Dear Sir, In reply to your enquiry letter of 7th instant we beg to
"
advise:--Re. E………….. Ltd. Respectably
constituted Company,
" considered good for its ordinary
business engagements. Your figures
" are larger than we are
accustomed to see. Yours faithfully, Per pro
" Heller &
Partners Limited."
The
National Provincial Bank communicated these replies to
their
customers the Appellants, and it is not suggested that this
was improper
or not warranted by modern custom. The Appellants
relied on these
statements and as a result they lost over £17,000
when Easipower went into
liquidation.
The
Appellants now seek to recover this loss from the Respondents
as
damages on the ground that these replies were given negligently
and in
breach of the Respondents' duty to exercise care in giving
them. In his
judgment McNair, J. said:
" On
the assumption stated above as to the existence of the duty,
"
I have no hesitation in holding (1) that Mr. Heller was guilty of
"
negligence in giving such a reference without making plain—as
he
" did not—that it was intended to be a very guarded
reference, and
" (2) that properly understood according to
its ordinary and natural
" meaning the reference was not
justified by facts known to Mr.
" Heller."
Before
your Lordships the Respondents were anxious to contest this
finding,
but your Lordships found it unnecessary to hear argument on
this
matter, being of opinion that the appeal must fail even if
Mr. Heller was
negligent. Accordingly I cannot and do not express
any opinion on the
question whether Mr. Heller was in fact
negligent But I should make it
plain that the Appellants'
complaint is not that Mr. Heller gave his reply
without adequate
knowledge of the position, nor that he intended to create
a false
impression, but that what he said was in fact calculated to create
a
false impression and that he ought to have realised that. And
the same
applies to the Respondents' letter of 11th November.
McNair, J.
gave judgment for the Respondents on the ground that they
owed no
duty of care to the Appellants. He said:
" I
am accordingly driven to the conclusion by authority binding
"
upon me that no such action lies in the absence of contract or
"
fiduciary relationship. On the facts before me there is clearly no
"
contract, nor can I find a fiduciary relationship. It was urged on
"
behalf of the Plaintiff that the fact that Easipower Limited were
"
heavily indebted to the Defendants and that the Defendants might
"
benefit from the advertising campaign financed by the Plaintiffs,
"
were facts from which a special duty to exercise care might be
"
inferred. In my judgment, however, these facts, though clearly
"
relevant on the question of honesty if this had been in issue, are
not
" sufficient to establish any special relationship
involving a duty of
" care even if it was open to me to
extend the sphere of special relation-
" ship beyond that of
contract and fiduciary relationship."
This
judgment was affirmed by the Court of Appeal both because they
were
bound by authority and because they were not satisfied that it
would
be reasonable to impose upon a banker the obligation
suggested.
Before
coming to the main question of law, it may be well to dispose
of
an argument that there was no sufficiently close relationship
between
these parties to give rise to any duty. It is said that
the Respondents did
not know the precise purpose of the enquiries
and did not even know
whether the National Provincial Bank wanted
the information for its own
use or for the use of a customer: they
knew nothing of the Appellants.
3
I would
reject that argument. They knew that the enquiry was in
connection
with an advertising contract, and it was at least
probable that the infor-
mation was wanted by the advertising
contractors. It seems to me quite
immaterial that they did not
know who these contractors were: there is no
suggestion of any
speciality which could have influenced them in deciding
whether to
give information or in what form to give it. I shall therefore
treat
this as if it were a case where a negligent misrepresentation is
made
directly to the person seeking information, opinion or
advice, and I shall
not attempt to decide what kind or degree of
proximity is necessary before
there can be a duty owed by the
defendant to the plaintiff.
The
Appellants' first argument was based on Donoghue v. Stevenson
[1932]
A.C. 562. That is a very important decision, but I do
not think that it has
any direct bearing on this case. That
decision may encourage us to develop
existing lines of authority
but it cannot entitle us to disregard them. Apart
altogether from
authority, I would think that the law must treat negligent
words
differently from negligent acts. The law ought so far as possible
to
reflect the standards of the reasonable man, and that is what
Donoghue
v. Stevenson sets out to do. The most
obvious difference between negligent
words and negligent acts is
this. Quite careful people often express definite
opinions on
social or informal occasions even when they see that others
are
likely to be influenced by them ; and they often do that without
taking
that care which they would take if asked for their opinion
professionally
or in a business connection. The Appellant agrees
that there can be no
duty of care on such occasions, and we were
referred to American and South
African authorities where that is
recognised although their law appears to
have gone much further
than ours has yet done. But it is at least unusual
casually to put
into circulation negligently-made articles which are dan-
gerous.
A man might give a friend a negligently-prepared bottle of home-
made
wine and his friend's guests might drink it with dire results. But
it
is by no means clear that those guests would have no action against
the
negligent manufacturer.
Another
obvious difference is that a negligently-made article will only
cause
one accident and so it is not very difficult to find the necessary
degree
of proximity or neighbourhood between the negligent
manufacturer and
the person injured. But words can be broadcast
with or without the consent
or the foresight of the speaker or
writer. It would be one thing to say that
the speaker owes a duty
to a limited class, but it would be going very
far to say that he
owes a duty to every ultimate " consumer " who acts
on
those words to his detriment. It would be no use to say that a
speaker
or writer owes a duty but can disclaim responsibility if
he wants to. He,
like the manufacturer, could make it part of a
contract that he is not to be
liable for his negligence: but that
contract would not protect him in a
question with a third party,
at least if the third party was unaware of it.
So it
seems to me that there is good sense behind our present law that
in
general an innocent but negligent misrepresentation gives no cause
of
action. There must be something more than the mere
misstatement. I
therefore turn to the authorities to see what more
is required. The most
natural requirement would be that expressly
or by implication from the
circumstances the speaker or writer has
undertaken some responsibility,
and that appears to me not to
conflict with any authority which is binding
on this House. Where
there is a contract there is no difficulty as regards
the
contracting parties: the question is whether there is a warranty.
The
refusal of English law to recognise any jus quaesitum
tertio causes some
difficulties, but they are not relevant
here. Then there are cases where a
person does not merely make a
statement but performs a gratuitous service.
I do not intend to
examine the cases about that, but at least they show that
in some
cases that person owes a duty of care apart from any contract,
and
to that extent they pave the way to holding that there can be a
duty
of care in making a statement of fact or opinion which is
independent of
contract.
Much of
the difficulty in this field has been caused by Derry v.
Peek,
14 App. Cas. 337. The action was brought against the
directors of a com-
pany in respect of false statements in a
prospectus. It was an action of
4
deceit
based on fraud and nothing else. But it was held that the
directors
had believed that their statements were true although
they had no reason-
able grounds for their belief. The Court of
Appeal held that this amounted
to fraud in law, but naturally
enough this House held that there can be no
fraud without
dishonesty and that credulity is not dishonesty. The question
was
never really considered whether the facts had imposed on the
directors
a duty to exercise care. It must be implied that on the
facts of that case
there was no such duty. But that was
immediately remedied by the Directors
Liability Act 1890 which
provided that a director is liable for untrue
statements in a
prospectus unless he proves that he had reasonable ground
to
believe and did believe that they were true.
It must
now be taken that Deny v. Peek did not establish any
universal
rule that in the absence of contract an innocent but
negligent misrepresenta-
tion cannot give rise to an action. It is
true Lord Bramwell said (at p. 347):
" To found an action for
damages there must be a contract and breach, or
" fraud."
And for the next twenty years it was generally assumed that
Derry
v. Peek decided that. But it was shown in this House in
Nocton v.
Ashburton [1914] A.C. 932 that that is
much too widely stated. We cannot,
therefore, now accept as
accurate the numerous statements to that effect in
cases between
1889 and 1914, and we must now determine the extent of the
exceptions
to that rule.
In Nocton
v. Ashburton a solicitor was sued for fraud. Fraud was
not
proved but he was held liable for negligence. Viscount
Haldane, L.C.
dealt with Derry v. Peek and pointed
out (at p. 947) that while the relation-
ship of the parties in
that case was not enough, the case did not decide
" that,
where a different sort of relationship ought to be inferred from
the
" circumstances, the case is to be concluded by asking
whether an action
" for deceit will lie ... There are other
obligations besides that of honesty
" the breach of which may
give a right to damages. These obligations
" depend on
principles which the judges have worked out in the fashion
"
that is characteristic of a system where much of the law has always
been
" judge-made and unwritten." It hardly needed
Donoghue v. Stevenson
to show that that process can still
operate. Then (at p. 950) Lord Haldane
quoted a passage from the
speech of Lord Herschell in Derry v. Peek
where he excluded
from the principle of that case " those cases where a
"
person within whose special province it lay to know a particular
fact
" has given an erroneous answer to an inquiry made with
regard to it by
" a person desirous of ascertaining the fact
for the purpose of determining
" his course ". Then (at
p. 954) he explained the expression " constructive
"
fraud " and said: " What it really means in this connection
is, not moral
" fraud in the ordinary sense, but breach of
the sort of obligation which is
" enforced by a court which
from the beginning regarded itself as a court
" of conscience
". He went on to refer to " breach of special duty "
and
said (at p. 955): "If such a duty can be inferred in a
particular case of a
" person issuing a prospectus, as, for
instance, in the case of directors
" issuing to the
shareholders of the company which they direct a prospectus
"
inviting the subscription by them of further capital, I do not find
in Derry
" v. Peek an authority for the
suggestion that an action for damages for
" misrepresentation
without an actual intention to deceive may not lie."
I find no
dissent from these views by the other noble and learned Lords.
Lord
Shaw also quoted the passage I have quoted from the speech of
Lord
Herschell, and, dealing with equitable relief, he approved
(at p. 971) a
passage in an argument of Sir Roundell Palmer which
concluded—" in
" order that a person may avail
himself of relief founded on it he must
" show that there was
such a proximate relation between himself and the
" person
making the representation as to bring them virtually into the
"
position of parties contracting with each other ": an
interesting anticipation
in 1871 of the test of who is my
neighbour.
Lord
Haldane gave a further statement of his view in Robinson
v.
National Bank of Scotland, 1916 S.C. (H.L.) 154, a
case to which I shall
return. Having said that in that case there
was no duty excepting the duty
of common honesty, he went on to
say:
5
" In
saying that I wish emphatically to repeat what I said in advising
"
this House in the case of Nocton v. Lord Ashburton, that
it is a
" great mistake to suppose that, because the
principle in Deny v. Peek
" clearly covers all
cases of the class to which I have referred, therefore
" the
freedom of action of the courts in recognising special duties
"
arising out of other kinds of relationship which they find
established
" by the evidence is in any way affected. I
think, as I said in Nocton's
" case, that an
exaggerated view was taken by a good many people
" of the
scope of the decision in Derry v. Peek. The whole of
the
" doctrine as to fiduciary relationships, as to the duty
of care arising
" from implied as well as express contracts,
as to the duty of care
" arising from other special
relationships which the courts may find to
" exist in
particular cases, still remains, and I should be very sorry
"
if any word fell from me which should suggest that the courts are
"
in any way hampered in recognising that the duty of care may be
"
established when such cases really occur."
This
passage makes it clear that Lord Haldane did not think that a
duty
to take care must be limited to cases of fiduciary relationship in
the
narrow sense of relationships which had been recognised by the
Court of
Chancery as being of a fiduciary character. He speaks of
other special
relationships, and I can see no logical stopping
place short of all those
relationships where it is plain that the
party seeking information or advice
was trusting the other to
exercise such a degree of care as the circumstances
required,
where it was reasonable for him to do that, and where the other
gave
the information or advice when he knew or ought to have known
that
the enquirer was relying on him. I say " ought to have
known " because
in questions of negligence we now apply the
objective standard of what
the reasonable man would have done.
A
reasonable man, knowing that he was being trusted or that his
skill
and judgment were being relied on, would, I think, have
three courses open
to him. He could keep silent or decline to give
the information or advice
sought: or he could give an answer with
a clear qualification that he
accepted no responsibility for it or
that it was given without that reflection
or enquiry which a
careful answer would require: or he could simply
answer without
any such qualification. If he chooses to adopt the last
course he
must, I think, be held to have accepted some responsibility for
his
answer being given carefully, or to have accepted a relationship
with
the enquirer which requires him to exercise such care as the
circumstances
require.
If that is
right, then it must follow that Candler v. Crane, Christmas
& Co.
[1951] 2 K.B. 164 was wrongly decided. There the
plaintiff wanted to see
the accounts of a company before deciding
to invest in it. The defendants
were the company's accountants,
and they were told by the company to
complete the company's
accounts as soon as possible because they were to
be shown to the
plaintiff who was a potential investor in the company.
At the
company's request the defendants showed the completed accounts
to
the plaintiff, discussed them with him, and allowed him to take a
copy.
The accounts had been carelessly prepared and gave a wholly
misleading
picture. It was obvious to the defendants that the
plaintiff was relying
on their skill and judgment and on their
having exercised that care which
by contract they owed to the
company, and I think that any reasonable
man in the plaintiff's
shoes would have relied on that. This seems to me
to be a typical
case of agreeing to assume a responsibility: they knew
why the
plaintiff wanted to see the accounts and why their employers,
the
company, wanted them to be shown to him, and agreed to show
them to
lim without even a suggestion that he should not rely on
them.
The
majority of the Court of Appeal held that they were bound by
Le
Lievre v. Gould [1893] 1 Q.B. 491, and that Donoghue v.
Stevenson had
no application. In so holding I think that
they were right. The Court
of Appeal have bound themselves to
follow all rationes decidendi of
previous Court of Appeal
decisions, and, in face of that rule, it would have
been very
difficult to say that the ratio in Le Lievre v. Gould
did not cover
6
Candler's
case. Lord Denning, who dissented, distinguished Le Lievre
v.
Gould on its facts, but, as I understand the rule
which the Court of
Appeal have adopted, that is not sufficient if
the ratio applies; and this is
not an appropriate occasion
to consider whether the Court of Appeal's
rule is a good one. So
the question which we now have to consider is
whether the ratio
in Le Lievre v. Gould can be supported. But before
leaving
Candler's case I must note that Cohen, L.J. (as he then
was)
attached considerable importance to a New York decision,
Ultramares
Corporation v. Touche (1931) 255 N.Y.
170, a decision of Cardozo, CJ.
But I think that another decision
of that great judge, Glanzer v. Shepherd
233 N.Y.
236, is more in point because in the latter case there was a
direct
relationship between the weigher who gave a certificate and
the pur-
chaser of the goods weighed, who the weigher knew was
relying on his
certificate: there the weigher was held to owe a
duty to the purchaser
with whom he had no contract. The Ultramares
case can be regarded
as nearer to Le Lievre v. Gould.
In Le
Lievre v. Gould a surveyor, Gould, gave certificates to a
builder
who employed him. The plaintiffs were mortgagees of the
builders' interest
and Gould knew nothing about them or the terms
of their mortgage; but
the builder, without Gould's authority,
chose to show them Gould's report.
I have said that I do not
intend to decide anything about the degree of
proximity necessary
to establish a relationship giving rise to a duty of
care, but it
would seem difficult to find such proximity in this case and
the
actual decision in Le Lievre v. Gould may therefore be
correct. But
the decision was not put on that ground: if it had
been Cann v. Willson,
39 Ch. D. 39, would not have
been overruled.
Lord
Esher, M.R. held that there was no contract between the
plaintiffs
and the defendant and that this House in Derry v.
Peek had " restated
" the old law that, in the
absence of contract, an action for negligence
" cannot be
maintained when there is no fraud " (p. 498). Bowen, L.J.
gave
a similar reason: he said: " Then Derry v. Peek
decided this further
" point—viz. that in cases
like the present (of which Derry v. Peek was
"
itself an instance) there is no duty enforceable in law to be careful
"
(p. 501); and he added that the law of England " does
not consider that
" what a man writes on paper is like a gun
or other dangerous instrument;
" and, unless he intended to
deceive, the law does not, in the absence of
" contract, hold
him responsible for drawing his certificate carelessly"
(p.
502). So both he and Lord Esher held that Cann v. Willson
was wrong
in deciding that there was a duty to take care. We
now know on
the authority of Donoghue v. Stevenson that
Bowen L.J. was wrong
in limiting duty of care to guns or other
dangerous instruments, and I
think that, for reasons which I have
already given, he was also wrong in
limiting the duty of care with
regard to statements to cases where there
is a contract. On both
points Bowen, L.J. was expressing what was then
generally believed
to be the law, but later statements in this House have
gone far to
remove those limitations. I would therefore hold that the ratio
in
Le Lievre v. Gould was wrong and that Cann v.
Willson ought not to
have been overruled.
Now I must
try to apply these principles to the present case. What
the
Appellants complain of is not negligence in the ordinary sense
of carelessness,
but rather misjudgment in that Mr. Heller, while
honestly seeking to give a
fair assessment, in fact made a
statement which gave a false and misleading
impression of his
customer's credit. It appears that bankers now commonly
give
references with regard to their customers as part of their business.
I
do not know how far their customers generally permit them to
disclose their
affairs, but even with permission it cannot always
be easy for a banker to
reconcile his duty to his customer with
his desire to give a fairly balanced
reply to an enquiry. And
enquirers can hardly expect a full and objective
statement of
opinion or accurate factual information such as skilled men
would
be expected to give in reply to other kinds of enquiry. So it seems
to
me to be unusually difficult to determine just what duty beyond
a duty to be
honest a banker would be held to have undertaken if
he gave a reply without
7
an
adequate disclaimer of responsibility or other warning. It is in
light of
such considerations that I approach an examination of the
case of Robinson
v. National Bank of Scotland.
It is not
easy to extract the facts from the report of the case in the Court
of
Session (1916 S.C. 46). Several of the witnesses were held to
be unreliable
and the principal issue in the case, fraud, is not
relevant for present purposes.
But the position appears to have
been this. Harley and two brothers Inglis
wished to raise money.
They approached an insurance company on the false
basis that
Harley was to be the borrower and the Inglis brothers were to
be
guarantors. To satisfy the company as to the financial standing
of the Inglis
brothers Harley got his London bank to write to
M'Arthur, a branch agent
of the National Bank of Scotland, and
M'Arthur on 28th July, 1910, sent a
reply which was ultimately
held to be culpably careless but not fraudulent.
Robinson, the
pursuer in the action, said that he had been approached by
Harley
to become a guarantor before the enquiry was made by Harley but
he
was disbelieved by the Lord Ordinary who held that he was not
brought
into the matter before September. This was accepted by the
majority in
•the Inner House and there is no indication that
any of their Lordships in
this House questioned the finding that
the letter of 28th July was not obtained
on behalf of Robinson.
Harley and
the brothers Inglis did not proceed with their scheme in July
but
they resumed negotiations in September. The company wanted
an
additional guarantor and Harley approached Robinson. A further
reference
was asked and obtained from M'Arthur on 1st October
about the brothers
Inglis but no point was made of this. The whole
case turned on M'Arthur's
letter of 28th July. After further
negotiation the company made a loan to
Harley with the brothers
Inglis and Robinson as guarantors. Harley and
the brothers Inglis
all became bankrupt and Robinson had to pay the company
under his
guarantee.
Robinson
sued the National Bank and M'Arthur. He alleged that
M'Arthur's
letter was fraudulent and that he had been induced by it to
guarantee
the loan. He also alleged that M'Arthur had a duty to
disclose
certain facts about the brothers Inglis which were known
to him, but this
alternative case played a very minor part in the
litigation. Long opinions
were given in the Court of Session on
the question of fraud but the alternative
case of a duty to
disclose was dealt with summarily. The Lord Justice
Clerk said (at
p. 63): " It appears to me that there was no such duty of dis-
"
closure imposed upon Mr. M'Arthur towards the pursuer as would
justify
" us in applying the principle on which Norton's
case was decided." Lord
Dundas referred (at p. 67) to
cases of liability of a solicitor to his client for
erroneous
advice and of similar liability arising from a fiduciary
relationship
and said " such decisions seem to me to have no
bearing on, or application to,
" the facts of the present
case." He also drew attention to the last sentence
of the
letter of 28th July which he said would become important if
fraud
were out of the case. That sentence is : " The above
information is to be
" considered strictly confidential, and
is given on the express understanding
" that we incur no
responsibility whatever in furnishing it." Lord Salvesen,
who
dissented, did not deal with the point: and Lord Guthrie merely
said
(at p. 85) that here there was no fiduciary relationship.
In this
House an unusual course was taken during the argument.
I quote
from the Session Cases report—1916 S.C. (H.L.) 154: "
After Counsel
" for the respondents had been heard for a
short time. Earl Loreburn informed
" him that their
Lordships, as at present advised, thought that there was no
"
special duty on M'Arthur toward the pursuer; that the respondents
were
" not liable unless M'Arthur's representations were
dishonest; and that their
" Lordships had not been satisfied
as yet that the representations were dis-
" honest . . . that
under the circumstances the House was prepared to
" dismiss
the appeal, but that they considered the pursuer had been badly
"
treated though he had not any cause of action at law, and that,
therefore,
" their Lordships were disposed to direct that
there should be no costs of the
" action on either side. Earl
Loreburn said that Mr. Blackburn might prefer
" to argue the
case further and endeavour to alter these views, but of course
30781 A4
8
" he
would run the risk of altering their Lordships' views as to the
legal
" responsibility as well as upon the subject of costs."
Mr. Blackburn then
—wisely no doubt—said no more, and
judgment was given for the bank but
with no costs here or below.
That case
is very nearly indistinguishable from the present case. Lord
Loreburn
regarded the fact that M'Arthur knew that his letter might be
used
to influence others besides the immediate enquirer as entitling
Robinson
to found on it if fraud had been proved. But it is not
clear to me that he
intended to decide that there would have been
sufficient proximity between
Robinson and M'Arthur to enable him
to maintain that there was a special
relationship involving a duty
of care if the other facts had been sufficient to
create such a
relationship. I would not regard this as a binding decision on
that
question.
With
regard to the bank's duty Lord Haldane said: " There is only
one
'' other point about which I wish to say anything, and that is
the question
" which was argued by the appellant, as to there
being a special duty of
" care under the circumstances here.
I think the case of Deny v. Peek in
" this
House has finally settled in Scotland, as well as in England and
Ireland,
" the conclusion that in a case like this no duty to
be careful is established.
" There is the general duty of
common honesty, and that duty, of course
" applies to the
circumstances of this case as it applies to all other circum-
"
stances. But when a mere inquiry is made by one banker of another,
who
" stands in no special relation to him, then, in the
absence of special circum-
" stances from which a contract to
be careful can be inferred, I think there
" is no duty
excepting the duty of common honesty to which I have
"
referred."
I think
that by " a contract to be careful " Lord Haldane must have
meant
an agreement or undertaking to be careful. This was a Scots
case and by
Scots law there can be a contract without
consideration: Lord Haldane
cannot have meant that similar cases
in Scotland and England would be
decided differently on the matter
of special relationship for that reason. I
am, I think, entitled
to note that this was an extempore judgment. So
Lord Haldane was
contrasting a " mere inquiry " with a case where there
are
special circumstances from which an undertaking to be careful can
be
inferred. In Robinson's case any such undertaking was
excluded by the
sentence in M'Arthur's letter which I have quoted
and in which he said
that the information was given " on the
express understanding that we incur
" no responsibility
whatever in furnishing it."
It appears
to me that the only possible distinction in the present case is
that
here there was no adequate disclaimer of responsibility. But here
the
Appellants' bank, who were their agents in making the enquiry,
began by
saying that " they wanted to know in confidence and
without responsibility
" on our part ", that is, on the
part of the Respondents. So I cannot see how
the Appellants can
now be entitled to disregard that and maintain that the
Respondents
did incur a responsibility to them.
The
Appellants founded on a number of cases in contract where very
clear
words were required to exclude the duty of care which would
otherwise
have flowed from the contract. To that argument there
are, I think, two
answers. In the case of a contract it is
necessary to exclude liability for
negligence, but in this case
the question is whether an undertaking to assume
a duty to take
care can be inferred: and that is a very different matter.
And,
secondly, even in cases of contract general words may be
sufficient if there
was no other kind of liability to be excluded
except liability for negligence:
the general rule is that a party
is not exempted from liability for negligence
" unless
adequate words are used "—per Scrutton, L.J., in Rutter
v. Palmer
[1922] 2 K.B. 87. It being admitted that there was
here a duty to give an
honest reply, I do not see what further
liability there could be to exclude
except liability for
negligence: there being no contract there was no question
of
warranty.
I am
therefore of opinion that it is clear that the Respondents never
under-
took any duty to exercise care in giving their replies. The
Appellants cannot
succeed unless there was such a duty, and
therefore in my judgment this
appeal must be dismissed.
Lord Morris of Borth-y-Gest
MY LORDS,
The
important question of law which has concerned your Lordships in
this
appeal is whether in the circumstances of the case there was a duty
of
care owed by the Respondents, whom I will call " the
bank", to the
Appellants, whom I will call " Hedleys ".
In order to recover the damages
which they claim Hedleys must
establish that the bank owed them a duty,
that the bank failed to
discharge such duty, and that as a consequence
Hedleys suffered
loss.
An
allegation of fraud was originally made but was abandoned.
The
learned Judge held that the bank had been negligent but that
they owed
no duty to Hedleys to exercise care. The Court of Appeal
agreed with the
learned Judge that no such duty was owed and it
was therefore not necessary
for them to consider whether the
finding of negligence ought or ought not
be upheld. In your
Lordships' House the legal issues were debated and
again it did
not become necessary to consider whether the finding of negli-
gence
ought or ought not be upheld. It is but fair to the bank to state
that
they firmly contend that they were not in any way negligent
and that they
were prepared to make submissions by way of
challenge of the conclusions
of the learned Judge.
Hedleys
were doing business with a company called Easipower Ltd. In
August,
1958, Hedleys wanted a banker's report concerning that company
who
then had an account with the bank. [In November, 1957, Hedleys
had
received a report about the company which had been given by
another bank
though not by direct communication.] Hedleys banked
at a Piccadilly
branch of the National Provincial Bank Limited.
Hedleys asked that a
report concerning Easipower Ltd. should be
obtained. The Piccadilly
branch communicated with the City office
of their bank, the National
Provincial. The National Provincial
City office telephoned the bank on the
18th August, 1958, and it
is common ground that the representative of the
National
Provincial said that " they wanted to know in confidence "
and
" without responsibility " on the part of the bank
as to the respectability
and standing of Easipower Ltd. and
whether Easipower Ltd. " would be
" good for an
advertising contract for £8/9,000." To that oral inquiry
the
bank then gave an oral answer. In due course the answer then
given was
communicated by the Piccadilly branch of the National
Provincial to Hedleys.
It was communicated orally and a letter of
confirmation from that branch
(dated the 21st August, 1958) was
sent to Hedleys. The letter had the
headings " Confidential"
and " For your private use and without responsi-
"
bility on the part of this Bank or the Manager." The oral answer
which
the bank had given to the City office of the National
Provincial was passed
on with the prefatory words—" In
reply to your telephoned enquiry of
" 18th August, Bankers
say:—".
There was
a later enquiry. On the 4th November, 1958, in a letter to
the
Piccadilly branch of the National Provincial Hedleys wrote: "
I have been
" requested by the Directors to again ask you to
check the financial structure
" and status of Easipower
Limited ": Hedleys made some particular refer-
ences and
concluded their letter with the words: " I would be
appreciative
" if you could make your check as exhaustive as
you reasonably can." In
a letter dated the 7th November and
headed "Private and Confidential"
the City office of the
National Provincial asked the bank for their " opinion
"
in confidence as to the respectability and standing of Easipower
Ltd."
and asked the bank to state whether they considered
Easipower Ltd. " trust-
" worthy, in the way of
business, to the extent of £100,000 per annum
"
advertising contract." The bank replied in a letter dated the
11th
November and sent to the City office of the National
Provincial. The letter
had the headings "Confidential"
and "For your private use and without
" responsibility
on the part of this Bank or its officials." On the 14th
November
the Piccadilly branch of the National Provincial wrote to
Hedleys
(heading their letter " Confidential. For your
private use and without
" responsibility on the part of this
Bank or the Manager") and, with the
10
prefatory
words: " In reply to your enquiry letter of 4th November,
Bankers
" say ", passed on what the bank had stated in
their letter to the City
office of the National Provincial.
It is, I
think, a reasonable and proper inference that the bank must
have
known that the National Provincial were making their enquiry
because some
customer of theirs was or might be entering into some
advertising contract
in respect of which Easipower Ltd. might
become under a liability to such
customer to the extent of the
figures mentioned. The enquiries were from
one bank to another.
The name of the customer (Hedleys) was not men-
tioned by the
enquiring bank (National Provincial) to the answering bank
(the
bank): nor did the enquiring bank (National Provincial) give to
the
customer (Hedleys) the name of the answering bank (the bank).
These
circumstances do not seem to me to be material. The bank
must have
known that the enquiry was being made by someone who was
contemplating
doing business with Easipower Ltd. and that their
answer or the substance
of it would in fact be passed on to such
person. The conditions subject
to which the bank gave their
answers are important but the fact that the
person to whom the
answers would in all probability be passed on was
unnamed and
unknown to the bank is not important for the purposes of
a
consideration of the legal issue which now arises. It is
inherently unlikely
that the bank would have entertained a direct
application from Hedleys
asking for a report or would have
answered an enquiry made by Hedleys
themselves: even if they had
they would certainly have stipulated that their
answer was without
responsibility. The present appeal does not raise any
question as
to the circumstances under which a banker is entitled (apart
from
direct authorisation) to answer an enquiry. I leave that question
as
it was left by Atkin, L.J. in Tournier v. National
Provincial & Union Bank
of England [1924] 1 K.B. 461, when
(at p. 486) he said: " I do not desire to
" express any
final opinion on the practice of bankers to give one another
"
information as to the affairs of their respective customers, except
to say
" it appears to me that if it is justified it must be
upon the basis of an
" implied consent of the customer."
The legal
issue which arises is, therefore, whether the bank would have
been
under a liability to Hedleys if they had failed to exercise care.
This
involves the questions whether the circumstances were such
that the bank
owed a duty of care to Hedleys, or would have owed
such a duty but for
the words " Without Responsibility ",
or whether they owed such a duty
but were given a defence by the
words " Without Responsibility " which
would protect
them if they had failed to exercise due care.
My Lords,
it seems to me that if A assumes a responsibility to B to
tender
him deliberate advice there could be a liability if the advice
is
negligently given. I say " could be " because the
ordinary courtesies and
exchanges of life would become impossible
if it were sought to attach
legal obligation to every kindly and
friendly act. But the principle of the
matter would not appear to
be in doubt. If A employs B (who might
for example be a
professional man such as an accountant or a solicitor
or a doctor)
for reward to give advice and if the advice is negligently
given
there could be a liability in B to pay damages. The fact
that the advice
is given in words would not, in my view, prevent
liability from arising.
Quite apart, however, from employment or
contract there may be circum-
stances in which a duty to exercise
care will arise if a service is voluntarily
undertaken. A medical
man may unexpectedly come across an unconscious
man, who is a
complete stranger to him, and who is in urgent need of
skilled
attention: if the medical man, following the fine traditions of
his
profession, proceeds to treat the unconscious man he must
exercise reason-
able skill and care in doing so. In his speech in
Banbury v. Bank of
Montreal [1918] A.C. 626 Lord Atkinson
(at p. 689) said: "It is well
" established that if a
doctor proceeded to treat a patient gratuitously, even
" in a
case where the patient was insensible at the time and incapable of
"
employing him, the doctor would be bound to exercise all the
professional
" skill and knowledge he possessed, or professed
to possess, and would
" be guilty of gross negligence if he
omitted to do so". To a similar
11
effect
were the words of Lord Loughborough in the much earlier case
of
Shiells v. Blackburne (1789) 1 H.B1. 158 when at p. 162
he said: "If
" a man gratuitously undertakes to do a
thing to the best of his skill,
" where his situation or
profession is such as to imply skill, an omission
" of that
skill is imputable to him as gross negligence." Compare
also
Wilkinson v. Coverdale (1793) 1 Esp. 75. I can
see no difference of principle
in the case of a banker. If someone
who was not a customer of a bank
made a formal approach to the
bank with a definite request that the
bank would give him
deliberate advice as to certain financial matters of
a nature with
which the bank ordinarily dealt the bank would be under
no
obligation to accede to the request: if however they undertook,
though
gratuitously, to give deliberate advice (I exclude what I
might call casual
and perfunctory conversations) they would be
under a duty to exercise
reasonable care in giving it. They would
be liable if they were negligent
although, there being no
consideration, no enforceable contractual relation-
ship was
created.
In the
absence of any direct dealings between one person and another,
there
are many and varied situations in which a duty is owed by one
person
to another. A road user owes a duty of care towards other road
users.
They are his " neighbours ". A duty was owed by the dock
owner
in Heaven v. Pender, L.R. 11 Q.B.D. 503. Under
a contract with a ship-
owner he had put up a staging outside a
ship in his dock. The plaintiff
used the staging because he was
employed by a ship painter who had
contracted with the shipowner
to paint the outside of the ship. The
presence of the plaintiff
was for business in which the dock owner was
interested and the
plaintiff was to be considered as having been invited
by the dock
owner to use the staging. The dock owner was therefore
under an
obligation to take reasonable care that at the time when the
staging
was provided by him for immediate use it was in a fit state to
be
used. For an injury which the plaintiff suffered because the
staging had
been carelessly put up he was entitled to succeed in a
claim against the
defendant. The chemist in George v.
Skivington, L.R. 5 Ex. 1 sold
the bottle of hair wash to
the husband knowing that it was to be used
by the wife. It was
held on demurrer that the chemist owed a duty towards
the wife to
use ordinary care in compounding the hair wash. In Donoghue
v
Stevenson [19321 A.C. 562 it was held that the manufacturer of
an article
of food, medicine, or the like, is under a duty to the
ultimate consumer
to take reasonable care that the article is free
from defect likely to cause
injury to health.
My
Lords, these are but familiar and well known illustrations,
which
could be multiplied, which show that irrespective of any
contractual or
fiduciary relationship and irrespective of any
direct dealing, a duty may be
owed by one person to another. It is
said, however, that where careless
(but not fraudulent)
misstatements are in question there can be no liability
in the
maker of them unless there is either some contractual or
fiduciary
relationship with a person adversely affected by the
making of them or
unless through the making of them something is
created or circulated or some
situation is created which is
dangerous to life, limb or property. In logic
I can see no
essential reason for distinguishing injury which is caused by
a
reliance upon words from injury which is caused by a reliance
upon the
safety of the staging to a ship or by a reliance upon the
safety for use of
the contents of a bottle of hair wash or a
bottle of some consumable liquid.
It seems to me, therefore, that
if A claims that he has suffered injury or
loss as a result of
acting upon some misstatement made by B who is not
in any
contractual or fiduciary relationship with him the enquiry that
is
first raised is whether B owed any duty to A: if he did the
further enquiry
is raised as to the nature of the duty. There may
be circumstances under
which the only duty owed by B to A is the
duty of being honest: there
may be circumstances under which B
owes to A the duty not only of being
honest but also a duty of
taking reasonable care. The issue in the present
case is whether
the bank owed any duty to Hedleys and if so what the
duty was.
12
Leaving
aside cases where there is some contractual or fiduciary
relation-
ship, there may be many situations in which one person
voluntarily or
gratuitously undertakes to do something for another
person and becomes
under a duty to exercise reasonable care. I
have given illustrations. But
apart from cases where there is some
direct dealing there may be cases
where one person issues a
document which should be the result of an
exercise of the skill
and judgment required by him in his calling and where
he knows and
intends that its accuracy will be relied upon by another. In
this
connection it will be helpful to consider the case of Cann v.
Willson
L.R. 39 Ch.D. 39. The owner of some property wished to
obtain an
advance of money on mortgage of the property and applied
to a firm of
solicitors for the purpose of their finding a
mortgagee. Being informed
by the solicitors that for the purpose
of finding a mortgagee he should
have a valuation made of the
property he consulted the defendants and
asked them to make a
valuation. They surveyed and inspected the property
and then made
a valuation which they sent to the solicitors. The solicitors
then
particularly called the defendants' attention to the purpose for
which
the valuation was wanted and to the responsibility they were
undertaking.
The defendants staled that their valuation was a
moderate one and certainly
was not made in favour of the borrower.
The valuation and representations
so made by the defendants to the
solicitors were communicated to the
plaintiff (and a co-trustee of
his) by the solicitors. The plaintiff (and his
co-trustee, who
died before the commencement of the action) then advanced
money to
the owner upon the security of a mortgage of his property.
Chitty,
J., held on the evidence (1) that the defendants were aware of
the
purpose for which the valuation was made, and (2) that the "
valuation
" was sent by the Defendants direct to the agents
of the Plaintiff for the
" purpose of inducing the Plaintiff
and his co-trustee to lay out the trust
" money on mortgage".
The owner made default in payment and the
property proved
insufficient to answer the mortgage. The plaintiff alleged
that
the value of the property was not anything like the value given
by
the defendants in their valuation. Chitty, J., held that "
the valuation as
" made was, in fact, no valuation at all."
In those circumstances the claim
made was on the basis that the
plaintiff has sustained loss through the
negligence, want of
skill, breach of duty and misrepresentation of the
defendants.
Chilly, J., held the defendants liable. His decision was
principally
based upon his finding that the defendants owed a duty of
care to
the plaintiff. It had been argued that there was also liability
in
the defendants in contract (referred to in the judgment as the
first ground)
and on the ground of fraud (referred to as the third
ground). At the end
of his judgment Chitty, J., said: "I have
entirely passed by the question
" of contract. It is
unnecessary to decide that point. I consider on these
" two
last grounds—and if I were to prefer one to the other it would
be
" the second ground—that the Defendant is liable for
the negligence." In
the course of his judgment he said: "
It is not necessary, in my opinion,
" to decide the case with
reference to the third point, but even on the third
" point I
think the Defendants are liable—and that is what may be
termed
" fraudulent misrepresentation." He then (that
is, on the 7th June, 1888) re-
ferred to the judgment in the Court
of Appeal in Peek v. Derry (37 Ch. D.
541). That
judgment was reversed in the House of Lords on the 1st July,
1889.
Chitty, J., compared the situation with that which arose in Heaven
v.
Pender (supra). He pointed out that in that case
there was " no contractual
" relation between the
Plaintiff and the dock owner, and there was no
" personal
direct invitation to the Plaintiff to come and do the work on
"
that ship, yet it was held that the dock owner had undertaken an
obliga-
" tion towards the Plaintiff, who was one of the
persons likely to come
" and do the work to the vessel, and
that he was liable to him and was
" under an obligation to
him to use due diligence in the construction of
" the
staging." Chitty, J., went on, therefore, to hold that as the
defendants
had "knowingly placed themselves" in the
position of sending their
valuation " direct to the agents of
the Plaintiff for the purpose of inducing
" the Plaintiff "
then they " in point of law incurred a duty towards him
"
to use reasonable care in the preparation of the document." He
likened
13
the case
to George v. Skivington (supra) and continued: "In
this case
" the document supplied appears to me to stand upon
a similar footing
" and not to be distinguished from that
case, as if it had been an actual
" article that had been
handed over for the particular purpose of being so
" used. I
think, therefore, that the Defendants stood with regard to the
"
Plaintiff—quite apart from any question of there being a
contract or not
" in the peculiar circumstances of this
case—in the position of being under
" an obligation or
duty towards him." My Lords, I can see no fault or
flaw in
his reasoning and I am prepared to uphold it. If it is correct,
then
it is submitted that in the present case the bank knew that
some existing
(though to them by name unknown) person was going to
place reliance upon
what they said and that accordingly they owed
a duty of care to such
person. I will examine this submission.
Before doing so I must, however,
further consider Cann v.
Willson. It was overruled by the Court of Appeal
in Le
Lievre and Dennes v. Gould [1893] 1 Q.B. 491. The
latter
case, binding on the Court of Appeal, in turn led to the
decision in
Candler v. Crane, Christmas & Co. [1951] 2
K.B. 164. It is necessary,
therefore, to consider the reasons
which governed the Court of Appeal in
Le Lievre v. Gould
in overruling Cann v. Willson. I do not propose
to
examine the facts in Le Lievre v. Gould: nor need
I consider whether
the result would have been no different had
Cann v. Willson not been
overruled. Lord Esher, M.R.
(at p. 497) said: "But I do not hesitate
" to say that
Cann v Willson is not now law. Chitty, J., in deciding
that
" case, acted upon an erroneous proposition of law,
which has been since
" overruled by the House of Lords in
Deny v. Peek when they restated
" the old law
that, in the absence of contract, an action for negligence cannot
"
be maintained when there is no fraud." Bowen, L.J., said (at p.
499)
that he considered that Derry v. Peek had
overruled Cann v. Willson. He
considered that Heaven
v. Pender gave no support for that decision because
it
was no more than an instance of the class of cases where one
who,
having the conduct and control of premises which may injure
those whom
he knows will have a right to and will use them, owes a
duty to protect
them. He said (at p. 501): " Then Derry v.
Peek decided this further point—
" viz., that in
cases like the present (of which Derry v. Peek was
itself
" an instance) there is no duty enforceable in law to
be careful." He
followed the view expressed by Romer, J., in
Scholes v. Brook, 63 L.T.
(N.S.) 837, that the
decision of the House of Lords in Derry v. Peek
by
implication negatived the existence of any such general
rule as laid down
in Cann v. Willson. The reasoning
of A. L Smith, L.J., in overruling
Cann v. Willson was
on similar lines.
The
enquiry is thus raised as to whether it was correct to say that
Derry
v. Peek had either directly or at least by
implication overruled that part
of the reasoning in Cann v.
Willson which led Chitty, J. to say that quite
apart from
contract and quite apart from fraud there was a duty of care
owed
by the defendants to the plaintiffs. My Lords, whatever views
may
have been held at one time as to the effect of Derry v.
Peek, authoritative
guidance as to this matter was given in
your Lordships' House in 1914 in
the case of Nocton v.
Ashburton [19141 A.C. 932. In his speech in that case
Viscount
Haldane, L.C. (at p. 947) said: " My Lords, the discussion of
the
" case by the noble and learned Lords who took part in
the decision appears
" to me to exclude the hypothesis that
they considered any other question
" to be before them than
what was the necessary foundation of an ordinary
" action for
deceit. They must indeed be taken to have thought that the
"
facts proved as to the relationship of the parties in Derry v.
Peek were
" not enough to establish any special duty
arising out of that relationship
" other than the general
duty of honesty. But they do not say that where
" a different
sort of relationship ought to be inferred from the circumstances
"
the case is to be concluded by asking whether an action for deceit
will
" lie. I think that the authorities subsequent to the
decision of the House
" of Lords shew a tendency to assume
that it was intended to mean more
" than it did. In reality
the judgment covered only a part of the field in
" which
liabilities may arise. There are other obligations besides that of
14
"
honesty the breach of which may give a right to damages. These
obliga-
" tions depend on principles which the judges have
worked out in the
" fashion that is characteristic of a
system where much of the law has always
" been judge-made and
unwritten." After a review of many authorities
Lord Haldane
said (at p. 955): "But side by side with the enforcement
"
of the duty of universal obligation to be honest and the principle
which
" gave the right to rescission, the Courts, and
especially the Court of Chan-
" cery, had to deal with the
other cases to which I have referred, cases
" raising claims
of an essentially different character, which have often been
"
mistaken for actions of deceit. Such claims raise the question
whether
" the circumstances and relations of the parties are
such as to give rise to
" duties of particular obligation
which have not been fulfilled." Lord
Haldane pointed out that
from the circumstances and relations of the parties
a special duty
may arise: there may be an implied contract at law or a
fiduciary
obligation in equity. What Deny v. Peek decided was
that the
directors were under no fiduciary duty to the public to
whom they had
addressed the invitation to subscribe. (I need not
here refer to statutory
enactments since Deny v. Peek.)
In his
speech in the same case Lord Dunedin pointed out that there can
be
no negligence unless there is a duty but that a duty may arise in
many
ways. There may be duties owing to the world at large:
alterum non
laedere. There may be duties arising from
contract. There may be duties
which arise from a relationship
without the intervention of contract in the
ordinary sense of the
term, such as the duties of a trustee to his cestui que
trust
or of a guardian to his ward.
Lord Shaw
in his speech pointed out (at p. 970) that Deny v. Peek "
was
" an action wholly and solely of deceit, founded wholly
and solely on fraud,
" was treated by this House on that
footing alone and that—this being so—
" what was
decided was that fraud must ex necessitate contain the
element
" of moral delinquency. Certain expressions by
learned Lords may seem
" to have made incursions into the
region of negligence but Deny v. Peek
"as a
decision was directed to the single and specific point just set
out."
Lord Shaw (at p. 972) formulated the following
principle: " That once the
" relations of parties have
been ascertained to be those in which a duty is
" laid upon
one person of giving information or advice to another upon
"
which that other is entitled to rely as the basis of a transaction,
responsi-
" bility for error amounting to misrepresentation
in any statement made will
" attach to the adviser or
informer although the information and advice
" have been
given not fraudulently but in good faith."
Lord
Parmoor in his speech said (at p. 978) in reference to Deny v.
Peek :
" That case decides that in an action founded
on deceit, and in which deceit
" is a necessary factor,
actual dishonesty, involving mens rea, must be
"
proved. The case, in my opinion, has no bearing whatever on actions
"
founded on a breach of duty in which dishonesty is not a necessary
factor."
My Lords,
guided by the assistance given in Nocton v. Ashburton I
con-
sider that it ought not to have been held in Le Lievre
v. Gould that Cann
v. Willson was wrongly
decided. Independently of contract there may be
circumstances
where information is given or where advice is given which
establishes
a relationship which creates a duty not only to be honest but
also
to be careful.
In his
speech in Heilbut, Symons & Co. v. Buckleton [1913] A.C. 30 Lord
Moulton (at p. 51) said that it was of the greatest
importance to " maintain
" in its full integrity the
principle that a person is not liable in damages
" for ar:
innocent misrepresentation, no matter in what way or under what
"
form the attack is made." That principle is, however, in no way
impeached
by recognition of the fact that if a duty exists there
is a remedy for the
breach of it. As Lord Bowen said in Low v.
Bouverie [1891] 3 Ch. 82:
" the doctrine that negligent
misrepresentation affords no cause of action
" is confined to
cases in which there is no duty, such as the law recognises,
"
to be careful."
The
enquiry in the present case, and in similar cases, becomes,
therefore,
an enquiry as to whether there was a relationship
between the parties which
created a duty and if so whether such
duty included a duty of care.
15
The
guidance which Lord Haldane gave in Nocton v. Ashburton
was
repeated by him in his speech in Robinson v.
National Bank of Scotland,
1916 S.C. (H.L.) 154. He clearly
pointed out that Deny v. Peek did not
affect (1) the
whole doctrine as to fiduciary relationship, (2) the duty of
care
arising from implied as well as express contracts, and (3)
the duty of care
arising from other special relationships which
the courts may find to exist
in particular cases.
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.
I do not
propose to examine the facts of particular situations or the facts
of
recently decided cases in the light of this analysis, but I proceed
to apply
it to the facts of the case now under review. As I have
stated, I approach
the case on the footing that the bank knew that
what they said would in
fact be passed on to some unnamed person
who was a customer of the
National Provincial Bank. The fact that
it was said that " they ", that is,
the National
Provincial Bank, " wanted to know " does not prevent
this
conclusion. In these circumstances I think some duty towards
the unnamed
person, whoever it was, was owed by the bank. There
was a duty of honesty.
The great question, however, is whether
there was a duty of care. The
bank need not have answered the
enquiry from the National Provincial
Bank. It appears, however,
that it is a matter of banking convenience
or courtesy and
presumably of mutual business advantage that enquiries
as between
banks will be answered. The fact that it is most unlikely that
the
bank would have answered a direct enquiry from Hedleys does
not
affect the question as to what the bank must have known as to
the use that
would be made of any answer that they gave but it
cannot be left out
of account in considering what it was that the
bank undertook to do. It
does not seem to me that they undertook
before answering an enquiry to
expend time or trouble " in
searching records, studying documents, weighing
" and
comparing the favourable and unfavourable features and producing
"
a well-balanced and well-worded report." (I quote the words of
Pearson,
L.J.). Nor does it seem to me that the enquiring bank
(nor therefore
their customer) would expect such a process. This
was, I think, what was
denoted by Lord Haldane in his speech in
Robinson v. National Bank of
Scotland when he spoke
of a " mere inquiry " being made by one banker
of
another. In Parsons v. Barclay & Co. Ltd. [1910] 26 T.L.R.
628, 103 L.T.
196 C.A., Cozens-Hardy, M.R. expressed the view that
it was no part of a
banker's duty, when asked for a reference, to
make inquiries outside as to
the solvency or otherwise of the
person asked about or to do more than
answer the question put to
him honestly from what he knew from the books
and accounts before
him. There was in the present case no contemplation
of receiving
anything like a formal and detailed report such as might be
given
by some concern charged with the duty (probably for reward) of
making
all proper and relevant enquiries concerning the nature, scope
and
extent of a company's activities and of obtaining and
marshalling all avail-
able evidence as to its credit, efficiency,
standing and business reputation.
There is much to be said,
therefore, for the view that if a banker gives a
reference in the
form of a brief expression of opinion in regard to credit-
worthiness
he does not accept, and there is not expected from him, any
higher
duty than that of giving an honest answer. I need not, however,
seek
to deal further with this aspect of the matter, which perhaps
cannot be
covered by any statement of general application, because
in my judgment the
bank in the present case, by the words which
they employed, effectively
disclaimed any assumption of a duty of
care. They stated that they only
16
responded
to the inquiry on the basis that their reply was without
responsi-
bility. If the enquirers chose to receive and act upon
the reply they cannot
disregard the definite terms upon which it
was given. They cannot accept
a reply given with a stipulation and
then reject the stipulation. Further-
more, within accepted
principles (as illustrated in Rutter v. Palmer [1922]
2
K.B. 87) the words employed were apt to exclude any liability
for
negligence.
I would therefore dismiss the appeal.
Lord Hodson
MY LORDS,
The
Appellants, who are advertising agents, claim damages for loss
which
they allege they have suffered through the negligence of the
Respondents,
who are merchant bankers.
The
negligence attributed to the Respondents consists of their failure
to
act with reasonable skill and care in giving references as to
the credit-
worthiness of a company called Easipower Limited which
went into liquida-
tion after the references had been given so
that the Appellants were unable
to recover the bulk of the costs
of advertising orders which Easipower
Limited had placed with
them.
The
learned Judge at the trial found that the Respondent bankers had
been
negligent in the advice which they gave in the form of
bankers
references, the Appellants being a company which acted in
reliance on the
references and suffered financial loss accordingly
but that he must enter
judgment for the Respondents since there
was no duty imposed by law to
exercise care in giving these
references, the duty being only to act honestly
in so doing.
The
Respondents have at all times maintained that they were in no
sense
negligent and further that no damage flowed from the giving
of references
but first they took the point that whether or no
they were careless and
whether or no the Appellants suffered
damage as a result of their carelessness
they must succeed on the
footing that no duty was owed by them. This
point has been taken
throughout as being, if the Respondents are right,
decisive of the
whole matter. I will deal with it first although the under-
lying
question is whether the Respondent bankers who at all times
disclaimed
responsibility ever assumed any duty at all.
The
Appellants depend on the existence of a duty said to be assumed by
or
imposed on the Respondents when they gave a reference as to the
credit-
worthiness of Easipower Limited knowing that it would or
might be relied
upon by the Appellants or some other third party
in like situation.
The case
has been argued first on the footing that the duty was imposed
by
the relationship between the parties recognised by law as being a
special
relationship derived either from the notion of proximity
introduced by Lord
Esher in Heaven v. Pender, 11 Q.B. D.
503, 509, or from those cases firmly
established in our law which
show that those who hold themselves out as
possessing a special
skill are under a duty to exercise it with reasonable
care.
The
important case of Donoghue v. Stevenson [1932] A.C. 562
shows that
the area of negligence is extensive, for as Lord
Macmillan said at page 619:
" The grounds of action
may be as various and manifold as human errancy ;
" and the
conception of legal responsibility may develop in adaptation to
"
altering social conditions and standards. The criterion of judgment
must
" adjust and adapt itself to the changing circumstances
of life. The categories
" of negligence are never closed. . .
. Where there is room for diversity
" of view, it is in
determining what circumstances will establish such a
"
relationship between the parties as to give rise, on the one side, to
a duty
" to take care, and on the other side to a right to
have care taken."
17
In that
case the necessary relationship was held to have been
established
where the manufacturer of an article, ginger beer in a
bottle, sold it
to a distributor in circumstances which prevented
the distributor or the
ultimate purchaser or consumer from
discovering by inspection any defect.
He is under a legal duty to
the ultimate purchaser or consumer to take
reasonable care that
the article is free from injurious defect. No doubt that
was the
actual decision in that case, and indeed it was thought by
Wrottesley,
J. in Old Gates Estates, Ltd. v. Toplis &
Harding & Russell [11939] 3 All E.R.
209 that he was
precluded from awarding damages in tort for a negligent
valuation
made by a firm of valuers which knew it was to be used by
the
plaintiffs since the doctrine of Donoghue v. Stevenson was
confined to
negligence which results in danger to life, limb or
health. I do not think
that this is the true view of Donoghue
v. Stevenson, but the decision itself,
although its effect has
been extended to cases where there was no expectation
as
contrasted with opportunity of inspection, see Grant v.
Australian Knitting
Mills [1936] A.C. 85, and to
liability of repairers, see Haseldine v. C. A.
Daw and
Son, Ltd. [1941] 2 K.B. 343, has never been applied to cases
where
damages are claimed in tort for negligent statements
producing damage.
The attempt so to apply it failed as recently as
1951, when in Candler v.
Crane, Christmas & Co. [1951]
2 K.B. 164, the Court of Appeal by a
majority held that a false
statement made carelessly as contrasted with
fraudulently by one
person to another, though acted on by that other to
his detriment,
was not actionable in the absence of any contractual or
fiduciary
relationship between the parties and that this principle had in
no
way been modified by the decision in Donoghue v.
Stevenson. Cohen, L.J.
one of the majority of the Court,
referred to the language of Lord Esher,
M.R. [1893] 1 Q.B. 491 in
Le Lievre v. Gould who, repeating the substance
of
what he had said in Heaven v. Pender [1883] 11 Q.B.
503, 509, said: " If
" one man is near to another, or is
near to the property of another, a duty
" lies upon him not
to do that which may cause a personal injury to that
" other,
or may injure his property." Asquith, L.J. the other member
of
the majority of the Court held that the " neighbour "
doctrine had not been
applied where the damage complained of was
not physical in its incidence
to either person or property. The
majority thus went no further than
Wrottesley, J. in the Old
Gate Estates case save that injury to property was
said to be
contemplated by the doctrine expounded in Donoghue v.
Stevenson.
It is desirable to consider the reasons given by the majority
for
their decision in the Candler case, for the Appellants rely
upon the dis-
senting judgment of Denning, L.J. in the same case.
The majority, as also
the learned trial Judge, held that they were
bound by the decision of the
Court of Appeal in Le Lievre v.
Gould [1893] 1 Q.B. 491, in which the
leading judgment was
given by Lord Esher, M.R. and referred to as authori-
tative by
Lord Atkin in Donoghue v. Stevenson.
It is true
that Lord Esher refused to extend the proximity doctrine so as
to
cover the relationship between the parties in that case and the
majority in
Candler's case were unable to draw a valid
distinction between the facts of
that case and the case of Le
Lievre v. Gould. Denning, L.J., however,
accepted the
argument for the Appellant which has been repeated before
your
Lordships, that the facts in Le Lievre v. Gould were
not such as to
impose a liability, for the plaintiff mortgagees
who alleged that the owner's
surveyor owed a duty to them not only
had the opportunity but had
stipulated for inspection by their own
surveyor. The defendant's employee
who prepared the accounts in
Candler's case knew that the plaintiff was
a potential
investor in the company of which the accounts were
negligently
prepared and that the accounts were required in order
that they might be
shown to the plaintiff. In these circumstances
I agree with Denning, L.J.
that there is a valid distinction
between the two cases. In Le Lievre v.
Gould it was
held that an older case of Cann v. Wilson was
overruled. That
is a case where the facts were in pari materia
with those in Candler's case
and Chitty, J. held the
defendants liable because (1) they independently of
contract owed
a duty to the plaintiff which they failed to discharge, (2) that
they
had made reckless statements on which the plaintiff had acted This
18
case was
decided before this House in Deny v. Peek, 14 App. Cas.
337, over-
ruled the Court of Appeal on the second proposition,
but the first proposition
was untouched by Deny v. Peek
and in so far as it depended on the authority
of George v.
Skivington [1869] L.R. 5 Ex 1 the latter case was
expressly
affirmed in Donoghue v. Stevenson although
it had often previously been
impugned. It is true that, as
Asquith, L.J. pointed out in referring to
George v.
Skivington, the hair wash put into circulation knowing it
was
intended to be used by the purchaser's wife was a negligently
compounded
hair wash so that the case was so far on all fours with
Donoghue v. Stevenson
but the declaration also
averred that the defendant had said that the hair
wash was safe. I
cannot see that there is any valid distinction in this field
between
a negligent statement, for example, an incorrect label on a
bottle
which leads to injury and a negligent compounding of
ingredients which
leads to the same result. It may well be that at
the time when Le Lievre and
Gould was decided the decision
of this House in Deny v. Peek was thought
to go
further than it did. It certainly decided that careless statements
reck-
lessly but honestly made by directors in a prospectus issued
to the public were
not actionable on the basis of fraud, and
inferentially that such statements
would not be actionable in
negligence (which had not in fact been pleaded)
but it was pointed
out by this House in Nocton v. Ashburton [1914]
A.C.
932 that an action does lie from negligent mistatement where
the circum-
stances disclose a duty to be careful. It is necessary
in this connection to
quote the actual language of Lord Haldane at
pages 955-956:—
"
Such a special duty may arise from the circumstances and relations
"
of the parties. These may give rise to an implied contract at law
or
" to a fiduciary obligation in equity. If such a duty
can be inferred in
" a particular case of a person issuing a
prospectus, as, for instance, in
" the case of directors
issuing to the shareholders of the company which
" they
direct a prospectus inviting the subscription by them of further
"
capital, I do not find in Deny v. Peek an authority for
the suggestion
" that an action for damages for
misrepresentation without an actual
" intention to deceive
may not lie. What was decided there was that
" from the
facts proved in that case no such special duty to be careful
"
in statement could be inferred, and that mere want of care
therefore
" gave rise to no cause of action. In other
words, it was decided that
" the directors stood in no
fiduciary relation and therefore were under
" no fiduciary
duty to the public to whom they had addressed the
"
invitation to subscribe. I have only to add that the special
relation-
" ship must, whenever it is alleged, be clearly
shewn to exist."
So far I
have done no more than summarise the argument addressed to
the
Court of Appeal in Candler's case to which effect was given in
the
dissenting judgment of Denning, L.J., with which I
respectfully agree in so
far as it dealt with the facts of that
case. I am therefore of opinion that
his judgment is to be
preferred to that of the majority, although the opinion
of the
majority is undoubtedly supported by the ratio decidendi of
Le
Lievre v. Gould which they cannot be criticised
for following.
This,
however, does not carry the Appellants further than this,
that
provided they can establish a special duty they are entitled
to succeed in
an action based on breach of that duty.
I shall
later refer to certain cases which support the view that apart
from
what are usually called fiduciary relationships such as those
between trustee
and cestui que trust, solicitor and client,
parent and child or guardian and
ward, there are other
circumstances in which the law imposes a duty to be
careful, which
is not limited to a duty to be careful to avoid personal injury
or
injury to property but covers a duty to avoid inflicting pecuniary
loss
provided always that there is a sufficiently close
relationship to give rise
to a duty of care.
The Courts
of Equity recognised that a fiduciary relationship exists " in
"
almost every shape ", to quote from Field, J. in Plowright v.
Lambert,
52 L.T. 646 at page 652. He went on to refer to a
case which had said that
the relationship could be created
voluntarily, as it were, by a person coming
into a state of
confidential relationship with another by offering to give
advice
in a matter, and so being disabled thereafter from purchasing
19
It is
difficult to see why liability as such should depend on the nature
of
the damage. Lord Roche in Morrison Steamship Company, Ltd.
v.
Greystoke Castle (Cargo Owners) [1947] A.C. 265 at
page 280 instanced
damage to a lorry by the negligence of the
driver of another lorry which
while it does no damage to the goods
in the second lorry causes the goods
owner to be put to expense
which is recoverable by direct action against the
negligent
driver.
It is not
to be supposed that the majority of the Court of Appeal who
decided
as they did in Candler's case were unmindful of the decision
in
Nocton v. Ashburton to which their attention was
drawn, but they seem to
have been impressed with the view that in
the passage I have quoted Lord
Haldane had in mind only fiduciary
relationships in the strict sense, but in
my opinion the words
need not be so limited. I am fortified in this opinion
by examples
to be found in the old authorities such as Shiells and Another
v.
Blackburne, 126 E.R. 94, Wilkinson v. Coverdale, 1
Esp. 75, 170 E.R.
283, and Gladwell v. Steggal, 132
E.R. 1282, which are illustrations of cases
where the law has held
that a duty to exercise reasonable care (breach of
which is
remediable in damages) has been imposed in the absence of a
fiduciary
relationship where persons hold themselves out as possessing
special
skill and are thus under a duty to exercise it with
reasonable care. The
statement of Lord Loughborough in Shiells
and another v. Blackburne
(supra) is always accepted as
authoritative and ought not to be dismissed
as dictum, although
the plaintiff failed to establish facts which satisfied the
standard
he set. He said: " If a man gratuitously undertakes to do a
thing
" to the best of his skill, where his situation or
profession is such as to imply
" skill, an omission of that
skill is imputable to him as gross negligence."
True that
proximity is more difficult to establish where words are
concerned
than in the case of other activities and mere casual
observations are not to
be relied upon, see Fish v. Kelly,
17 C.B. (N.S.) 194, but these matters go
to difficulty of
proof rather than principle.
A modern
instance is to be found in the case of Woods v. Martins
Bank,
Ltd. and Another [1959] 1 Q.B. 55, where Salmon, J. held
that on the facts of
the case the defendant bank which had held
itself out as being advisers on
investments (which was within the
scope of their business) and had not given
the plaintiff
reasonably careful or skilful advice so that he suffered loss
were
held in breach of duty and so liable in damages even though
the plaintiff
may not have been a customer of the bank at the
material time.
True that
the learned Judge based this part of his conclusion on a
fiduciary
relationship which he held to exist between the
plaintiff and the bank and
thus brought himself within the scope
of the decision in Candler's case by
which he was bound.
For my part I should have thought that even if the
learned Judge
put a strained interpretation on the word " fiduciary "
which
is based on the idea of trust, the decision can be properly
sustained as an
example involving a special relationship.
I do not
overlook the point forcefully made by Harman, L.J. in his judg-
ment
([1961] 3 W.L.R. 1239) and elaborated by counsel for the
Respondent
before your Lordships that it may in certain cases
appear to be strange that
whereas innocent misrepresentation does
not sound in damages, yet in the
special cases under consideration
an injured party may sue in tort a third
party whose negligent
misrepresentation has induced him to enter into the
contract. As
was pointed out by Lord Wrenbury, however, in Banbury v.
The
Bank of Montreal [1918] A.C. 626 at p. 713, innocent
misrepresentation
is not the cause of action but evidence of the
negligence which is the cause
of action.
Was there,
then, a special relationship here? I cannot exclude
from
consideration the actual terms in which the reference was
given and I cannot
see how the Appellants can get over the
difficulty which these words put in
their way. They cannot say
that the Respondents are seeking, as it were,
contract out of
their duty by the use of language which is insufficient for
the
purpose if the truth of the matter is that the Respondents never
assumed
a duty of care nor was such a duty imposed upon them.
20
The first
question is whether a duty was ever imposed, and the language
used
must be considered before the question can be answered. In the
case
of a person giving a reference I see no objection in law or
morals to the
giver of the reference protecting himself by giving
it without taking responsi-
bility for anything more than the
honesty of his opinion which must involve
without taking
responsibility for negligence in giving that opinion. I cannot
accept
the contention of the Appellant that the responsibility disclaimed
was
limited to the bank to which the reference was given nor can I
agree that
it referred only to responsibility for accuracy of
detail.
Similar
words were present in the case of Robinson v. National Bank
of
Scotland, 1916, S.C. (H.L.) 154 at page 159, a case in
which the facts cannot,
I think, be distinguished in any material
respect from this. Moreover, in
the Inner House the words of
disclaimer were, I think, treated as not
without significance.
In this
House the opinion was clearly expressed that the representations
made
were careless, inaccurate and misleading but that the pursuer had
no
remedy since there was no special duty on the bank's
representative towards
the pursuer. This conclusion was reached
quite apart from the disclaimer
of responsibility contained in the
defender bank's letters.
Viscount
Haldane recalled the case of Nocton v. Ashburton in
the
following passage at page 157: —
" In
saying that I wish emphatically to repeat what I said in advising
"
this House in the case of Nocton v. Lord Ashburton that
it is a
" great mistake to suppose that, because the
principle in Deny v. Peek
" clearly covers all cases
of the class to which I have referred, therefore
" the
freedom of action of the Courts in recognising special duties
arising
" out of other kinds of relationship which they find
established by the
" evidence is in any way affected. I
think, as I said in Nocton's case,
" that an
exaggerated view was taken by a good many people of the
"
scope of the decision in Deny v. Peek. The whole of the
doctrine as
" to fiduciary relationships, as to the duty of
care arising from implied
" as well as express contracts, as
to the duty of care arising from other
" special
relationships which the Courts may find to exist in particular
"
cases, still remains, and I should be very sorry if any word fell
from
" me which should suggest that the Courts are in any way
hampered
" in recognising that the duty of care may be
established when such
" cases really occur."
This
authority is, I think, conclusive against the Appellants and is
not
effectively weakened by the fact that the case came to an end
before the
matter had been fully argued upon the House intimating
that it was prepared
to dismiss the appeal without costs on either
side since the pursuer had in
its opinion been badly treated.
Since no detailed reasons were given by the
House for the view
that a banker's reference given honestly does not in the
ordinary
course carry with it a duty to take reasonable care, that duty
being
based on a special relationship, it will not, I hope, be out
of place if I express
my concurrence with the observations of
Pearson, L.J. who delivered the
leading judgment in the Court of
Appeal and said—see [1961] 3 W.L.R. at
p. 1239:
"
Apart from authority, I am not satisfied that it would be
reasonable
" to impose upon a banker the obligation
suggested, if that obligation
" really adds anything to the
duty of giving an honest answer. It is con-
" ceded by Mr.
Cooke that the banker is not expected to make outside
"
inquiries to supplement the information which he already has. Is he
"
then expected, in business hours in the bank's time, to expend time
and
" trouble in searching records, studying documents,
weighing and com-
" paring the favourable and unfavourable
features and producing a
" well-balanced and well-worded
report? That seems wholly unreason-
" able. Then, if he is
not expected to do any of those things, and if he
" is
permitted to give an impromptu answer in the words that immedi-
"
ately come to his mind on the basis of the facts which he happens
to
" remember or is able to ascertain from a quick glance at
the file
" or one of the files, the duty of care seems to add
little, if anything,
21
" to
the duty of honesty. If the answer given is seriously wrong, that
"
is some evidence—of course, only some evidence—of this
honesty.
" Therefore, apart from authority, it is far from
clear, to my mind, that
" fore, apart from authority, it is
far from clear, to my mind, that
" the banker, hi answering
such an inquiry, could reasonably be supposed
" to be
assuming any duty higher than that of giving an honest answer."
This is to
the same effect as the opinion of Lord Cozens-Hardy, M.R. in
Parsons
v. Barclays Bank Ltd. (1910) 26 T.L.R. at page 628 cited
as
follows :—
" His
Lordship said he wished emphatically to repudiate the sug-
gestion
that, when a banker was asked for a reference of this
" kind,
it was any part of his duty to make inquiries outside as to the
"
solvency or otherwise of the person asked about, or to do anything
"
more than answer the question put to him honestly from what he
"
knew from the books and accounts before him. To hold otherwise
"
would be a very dangerous thing to do and would put an end to a
very
" wholesome and useful practice and long established
custom which was
" now largely followed by bankers."
It would,
I think, be unreasonable to impose an additional burden on
persons
such as bankers who are asked to give references and might if
more
than honesty were required be put to great trouble before all
available
material had been explored and considered.
It was
held in Low v. Bouverie [1891] 3 Ch. 82 that if a trustee
takes upon
himself to answer the enquiries of a stranger about to
deal with the cestui
que trust, he is not under a legal
obligation to do more than to give honest
answers to the best of
his actual knowledge and belief, he is not bound to
make enquiries
himself.
I do not think