10 November 2011 | Allan Wardhaugh

Is there a duty of care to prevent economic loss?

Hedley Byrne was an advertising company that asked its banker for a report on the financial position of one of its clients, whom it was doing work on credit for. Hedley’s banker asked the client’s banker (Heller) for a report. Crucially, there was no contractual relationship between Hedley Byrne and Heller.

Heller provided a report that was stated to be given “without responsibility” to Hedley’s bankers and showed the client to be in a strong financial position. Hedley’s bankers sent the report to Hedley, which relied on the contents and continued to provide services on credit. The client went into liquidation and Hedley sued Heller for its negligent report. 

In a landmark judgment, the House of Lords held that, in the absence of the “without responsibility” disclaimer, Hedley would have had a successful claim. Their Lordships ruled the law imposes a duty of care on an advisor with specialist skill and knowledge who knows or ought to know that his or her special skill is being relied on, even if he or she is not in a contract with the person relying on the information.

Since Hedley Byrne, it has been possible to seek damages for economic loss where slack information is relied on without a contract. The courts have decided that we owe a duty to the world at large not to cause economic loss with negligent or careless advice. It doesn’t matter if the advice or information is given in good faith: if it was carelessly prepared and therefore wrong, liability may be imposed. Someone who holds him or herself out as possessing special skill and who undertakes, irrespective of contract, to apply that skill for the assistance of another person “assumes responsibility” for the accuracy of the information relied upon.

The case is also an endorsement 
of the effectiveness of a clear disclaimer. At the end of the day, it 
was Heller’s disclaimer that saved
it from liability.

And the moral of the story? Take care when giving advice, because
if you know that someone will rely 
on it, the lack of a contract won’t 
save you. If you’re going to give the advice anyway, stick a big disclaimer on every page and hope that the 
courts don’t decide to refine that 
part of the law.

☛ Allan Wardhaugh is a partner at Dundas & Wilson