House Of Lords Law Report, May 28 Before LoRD REID, LoD MoaRis OF BORTH- v-GEsr, LoRD HODSON, LoRD DEVLIN and LoRD PEARCE Their LoRDsauPs, in reserved judgments, dismissed this appeal by plaintiffs, HedleY Byrne & Co. Ltd., advertising agents, fromn the decision of the Court of Appeal (Lord Justice OTmerod, Lord Justice Harman and Lord Justice Pearson) ([1962] I Q.B. 396; The Times. October 19, 1961) aftirming the decision of Mr. Justice McNair (The Times, December 20. 1960) who had dismissed their action for damages against the de- fendants, Heller & Partners Ltd., and had held that there was no duty of care on bankers in giving references in the absence of a contraetual, fiduciary or other special relationship. Hedley Byrne & Co.. as advertising agents, placed substantial forward adver- tising orders for a client, Easipower Ltd., on terms that they were personally liable for the cost of the orders. They asked their bankers, National Provincial Bank Ltd., to inquire into the financial stability of Easipower Ltd.' and the National Pro- vincial Bank made inquiries of Heller & Partners Ltd.. the defendants. who were Easipower Ltd.'s bankers. Hellers gave favourable refer=nces in respect of Easi- power Ltd. and these were passed on to I liedley Byrne & Co., but Helleirs had given the references with an express disclaimer of responsibility. In fact at the date of the references, Easipower Ltd. were in a serious financial position and beavily indebted to Hellers and its trade creditors. Hellers had taken over the financing of the company and granted it substantia' facilities. It was assumed that Easipower Ltd. was depend- ent for its survival on the facilities pro- vided by Hellers, anJ that the references were not justified by the facts as known to Hellers. Relying on the references, Hedley Byrne & Co. refra'ned from cancellii) the orders, but shortly after the references had been given Easipawer Ltd. went irto liquidation and Hedley Byrne & Co. were unable to recover trom. them the greater part of the cost of the orders. They claimed damages for negligent misrepresentations contained in the refarences, abandoning at the trial allegationis of fraed contained in the pleadings. Mr. Gerald Gardiner, Q.C, Mr. Douglas Lowe, and Mr. Bryan Anns appeared for the plaintiffs; Mr. John Foster, Q.C, Mr. John Shaw, and Mr. Louis Bom-Cooper for the defendants. JUDGMENT LoRD REiD said that both the references given by the defendants were given in con- fidence and without responsibility. The first was given over the telephone to National Provincial Bank who "wanted to know in confidence and without responsi- bility " on the defendants' part " the respec- tability and standing of Easipower Ltd.". The second was a written reference given in reply to a letter by National Provincial Bank and it began: " Confidential. For your private use and without responsibility on the part of the [defendant] bank or its officials." There was thus in the case a Clear disclairner of any responsibility by the defendants for the references which they had given. lhe important decision in the present case was whether and if so in what cir- curnstances negligent but honest misrepre- sentation could give rise to an action in damages. It was said that there was not here a sufficiently close relationship between the plaintiffs and defendants to create any duty of care because the defendants did not know the precise purpose of the in- quiries made of them and did not even know of the plaintiffs' existence. That argument could not be aocepted: they knew that the inquiries were in connexion with an advertising contract and it was at least probable that the information was desired by advertising contractors. lt was there- fore immaterial that ithe defendants did now know that the plaintiffs were the adver- tising contractors concerned. The plaintiffs' case rested on the general duty in negligence formulated in Donoghue v. Stevenson ([1932] A.C. 562) that a man must take reasonable care to avoid injury to his neighbour. That case was concerned with a negligently made article and there were obvious differences between negligent acts and negligent words. Quite careful people often expressed definite words on social and informal occasions even when they saw others would be influenced by them; and yet their words were uttereda wi.thout their taking the care which they would exercise if asked for their opinion professionally or on a business occasion. But it was unusual casually to circulate negligently made articles. Again, a negli- gently made article would cause only one accident and so it was not very difficult to find the necessary degree of proximity between the negligent manufacturer and the Person injured. Words, however, could be broadcast without the consent or foresight of their author to a wide audience causing many accidents, and it would be going very far to say that a duty was owed to every ultimate " consumer " who acted on them to his detriment. SOME RESPONSTBILllY Therefore there was good sense behind the law that in general an innocent but negligent representation gave no cause of action. There had to be something more than mere misstatemont to establish liability. There had to be expressly, or by implication from the circumstances, an assumption by the speaker or writer of some responsibility for the words in ques- tion. Where it was plain that the partv seeking in-formation or advice trusted the party supplying it to exercise such a degree of care as the circumstances required, and it was reasonable so to trust the person supplying information, and the latter knew or ought to have known that the inquirer was relying on him, the law imposed a duty of care on tte party making the statement or giving advice. Lord Haldane had clearly indicated that the duty to take care was not confined to cases of a special or fiduciary relationship. A reasonable man, who knew that his skill and judgment were being relied upon, could decline to give the information or advice sought, or he could give it with the clear qualification that he accepted no responsiblity for it, or he could answer without qualification. If he chose the last course he accepted a relationship with the inquirer which required him to, take such care as the circumstances demanded. A typical case would be if a company's accountants showed its accounts to a pro- spective investor in it. knowing that he was relying on their skill in preparing the accounts. If they were carelessly prepared and wholly misleading, the accountants would be liable to the investor for his loss. It followed therefore that cases such as Candler v. Crane Christmas & Co. ([19511 2 K.B. 164) and the ratio of Le Lievre v. Gould ([1893] 1 Q.B. 49) were wrong and should be overruled. Bat on the test propounded above the plaintiffs could not succeed. There had been an express disclaimer of responsi- bility by the defendants when the references were given. The first inquiry made of them began on the basis that no responsi- bility was to be accepted. The plaintiffs could not disregaird that now and assert that there was a responsibitity undertaken by the defendants. Therefore, it was not possible in this case to infer an undertaking to assume a duty of care by the defendants and the appeal would be dismissed. LORD MoRRs of BoRTH-Y-GEST, con- curring, said that if A assumed a responsi- bility to B to tender him deliberate advice there could be liability if the advice was negligently given. His Lordship said " could be " because the ordinary courtesies of life would become impossible if a legal obligation attached to every kind and friendly act. But if a professional man such as a doctor or banker voluntarilv undertook a service by giving deliberate advice he wvas under a duty to exercise reasonable care. It mattered not that there was no contract or fiduciary relationship between thenm There was no lo.i .al dis- tinction between injury caused by nogligtmn words and injury caused by negligent acts It must now be taken as settled that if 4onMene possessed of a special skill under- took, quite irrespective of contract, to apply that sUill for the assistance of another who relied upon such skill a duty of care would arise. The faot thAt the service was given by means of words made no difference. There was in this case nothing like a formal and detailed report such as might be given by someone who had a duty to make all relevant inquiries about the nature and exten,t of a company's activities. There was much to be said for the view that if a banker gave a brief ex,pression of opinion about his oustomer's ored,t worthiness he was only exPected to give an honest answer. The point did not arise in this case because there had been an express disclaimer of responsibility which negatived any duty oyf care. LORD HODSON, agreeing, said that the dissenting judgment of Lord Justice Den- ning (as he then was) in Candlers case was correct. Liability did not depend on the nature of the damage suffered or on whether it was caused by words or acts. Negligent words causing financial loss could give rise to damages. It was true that the Proximity required to create liability was more difficult to establish in the case of words than in the case of activities and that mere casual observations were not to be relied upon, but these matters went to difficulty of proof rather than principle. A modern example of the principle would be the giving of negligent advice by a bank on investments when advising on invest- ments was part of its business. The fact that -the advice was given to someone not its oustomer or in any fiduciary relation- ship with it would not matter. But in this case the language of .tho disclaimer of responsibility prevented the plaintiffs from Lecovering. LORD JJEVLIN, also agreeing, said that it had been thought that the sort of negligence was confined entirely to deeds and did not extend to words. It had also been supposed that negligence causing financial loss as opposed to physical injury was not action- able. Both these views were erroneous, T-here was neither logic nor common sense to support these distinctions. If as the result of a doctor's negligent advice a patient ceased to continue his occupation and lost his livelihood the patient was said to have no remedy, unless he had given the doctor half a guinea for his trouble, when he could recover for breach of contract. This was nonsense, and it was not the sort of non- sense that could arise even in the best system of law out of the need to distinguish between borderline cases. It was the sort of nonsense that arose out of a refusal to giake sense. Previous cases in their Lordships' house bad shown that the duty to &ive careful advice and accurate information was not limited to contractual and fiduciary reia- tionships. The duty extended more generally and it was for their Lordships to say in w,hat cases beyond those of fiduciary obligation it could 'be properly extended. The problem created bv this case arose as a rbyiproduct o,f the doctrine of consideration. If the defendants had made a charge for the reference, there would have been a contract and the prob- lem would not exist The defendants' sheet anchor was that they performed a service gratuitously and therefore no liability for its performance arose. Tihis was not the law. A promise given without considera- tion could not be enforced as a contract, but if the service promised was performed and performed negligently the promisee could recover in tort. This was the foundation of the gratuitous bailee's liabd:lity. In other cases the same result was achieved by setting up some noninal consideration and the gratuitous bailees were liable in contract. In one way or another the law had ensured that in this type of case a just result was achieved, but today the result oould and should be achieved by the law of negligence and it was unnecessary and undesirable to set up an artificial consideration. Sir Frederichk Pollock was right when he said " the cause of action is better regarded as arising from default in the performance oif a voluntary undertaking independent of contract". The principle had not yet been applied to a case where the defendant undertook to obtain and impart information but there was no reason why it should not be. Nor would it matter if the information campnised fact or opinion or a mixture of both or derived fiom special inquiries or from facts directly in the defendant's possession. The duty to take care arose in all relationships vAhich in the words of Lord Shaew were " equivalent to contract ", that is, where there is an assumption of responsibility in circimstances wIhich but for the absence of consideration there would be a contraot Responsibility could only attach where one could imply a voluntary undertaking to assume responsibility and it was because that irmplication could not be made in the present case that the plaintiffs failed. LORD PEARCE, concurring. said that negligence in word created different pro- blems from negligence in act. Words were more volatile than deeds; they travelled fast and far afield. Yet they could be dangerous and could cause vast financial damage. If the mere reading or hearing of words were held to create proximity, there would be no limit to the persons to whom the speaker or writer could be liable. How wide the duty of care in negligence should extend depended ultimately on the court's assessment of society's demands for pro- tection from the carelessness of others. The duty to give careful information extended to all persons whom it was known would rely on it. It was said that if that be so, there would be confusion in the law and the established rule that innocent mis- representation gave no right to damages would be infringed. But his Lordship could not accept either of those contentions. The true rule was that innocent misrepresenta- tion per se gave no right to damages. Brt if the misrepresentation was intended to form part of a warranty, there was con- tractual liability. So. too, if it was made between parties in a fiduciary relationshio it gave rise to damages. Likewise if it was made in a relationship between the parties which, though not fiduciary, assumed that care as well as honesty was demanded. Solicitors.-Messrs. Evill & Coleman; Messrs. Franks, Charlesly & Co. HOUSE OF LORDS CANDLER'S CASE OVERRULED HEDLEY BYRNE & CO. LTD. v. HELLER & PARTNERS LTD.