The Law of Misstatements: 50 Years on from Hedley Byrne v Heller 9781782257981, 9781849468633, 9781509901876

Table of contents :
Cover
Half-title
Title
Copyright
Preface
Acknowledgements
Contents
List of Contributors
Table of Cases
Table of Legislation
Part 1: Issues
1. Hedley Byrne v Heller: Issues at the Beginning of the Twenty-First Century
I. Introduction
II. Aims and Overview
III. History, Concepts and Theory
IV. Intersections and Distributions of Liability
V. Conclusion
Part 2: History, Concepts and Theory
2. Hedley Byrne v Heller in Australia: ‘Never has there been such a Judicial Jamboree’
I. The Law Prior to Hedley Byrne
II. Hedley Byrne v Heller: The Immediate Aftermath of the Decision in Australia
III. Caltex: Working Out the Principles Behind Pure Economic Loss
IV. Pure Economic Loss, Hedley Byrne and the Rise of Proximity
V. A Multifactoral Approach and Hedley Byrne
3. The Assumption of Responsibility
I. The Assumption of Responsibility in Hedley Byrne
II. Is the Obligation Voluntarily Assumed?
III. The Voluntary Entry into a Relationship
IV. The Assumption of Responsibility as Proximity
V. Conclusion
4. The Basis of the Hedley Byrne Action
I. Introduction
II. Identifying the Hedley Byrne Action
III. The Negligence Plus Model
IV. Negligent Misrepresentation and the Neighbour Principle
V. Imposed and Assumed Obligations
VI. The Doctrine of Consideration and Hedley Byrne
VII. Assumption of Responsibility and the Law of Negligence
VIII. Conclusion
5. The Curious Incident of the Dog that did Bark in the Night-Time: What Mischief does Hedley Byrne v Heller Correct?
I. Introduction
II. The Mischief in Hedley Byrne
III. Why was Contract Thought not to be Good Enough?
IV. What Did Derry v Peek Decide?
V. Conclusion
Part 3: Intersections and Distributions of Liability
6. Equity as Tort?
I. Introduction
II. The Rise and Destruction of the Jurisdiction to Make Good Representations
III. The Destruction of an Equitable Jurisdiction
IV. The Unconscionable Insistence on Strict Legal Rights to Property
V. Nocton v Ashburton and its Consequences
VI. Breach of Confi dence and the Compensatory Jurisdiction
VII. The Assessment Principles—With Little Past at their Back
VIII. Conclusion
7. Limitations on Defendant Liability for Misleading or Deceptive Conduct Under Statute: Some Insights from Negligent Misstatement
I. Introduction
II. Limiting Factors in the Law of Negligent Misstatement
III. Limiting Factors Under the ACL
IV. Conclusion
8. Advisor Liability: Claims for Contribution or Reimbursement Between an Advisor and the Advisee’s Contract-Partner
I. Introduction
II. Ways of Allocating Liability Between Multiple Debtors
III. The Advisee Enforces the Induced Contract
IV. The Advisee Pursues a Claim for Misrepresentation Against the Contract-Partner
V. Conclusion
Part 4: Comparative Perspectives
9. What are We Doing Here? The Relationship Between Negligence in General and Misstatements in English Law
I. Introduction
II. Misstatements as Something Other than Tort/Negligence
III. Misstatements as a Unique Head of Negligence
IV. Assumption of Responsibility
V. The Place of Hedley Byrne within Negligence
VI. Conclusions
10. Negligent Misstatement in the United States
I. Introduction
II. Precursors
III. Transformation
IV. Tension and Controversy
V. Context
11. Hedley Byrne: Misused, then Exiled by the Supreme Court of Canada
I. Introduction
II. Negligent Misstatement in Canada—Hercules Management Ltd v Ernst & Young
III. The Defendant Must Intend the Plaintiff to Rely—The Assumption of Responsibility Requirement
IV. The ‘End and Aim Rule’ and Indeterminate Liability
V. What about Reliance?
VI. The Difference Between Hedley Byrne and Other Claims for Economic Loss
VII. Does it Really Matter?
12. Liability Under Hedley Byrne for ‘Pre-Contract’ Negligent Misrepresentation: A New Zealand Perspective
I. Introduction
II. The Speeches in Hedley Byrne
III. Development of the Law
IV. The Advantages of a Tort Claim
V. The New Zealand Reform
VI. Impact of the Fair Trading Act 1986
13. Negligent Misstatement in Australia—Resolving the Uncertain Legacy of Esanda
I. Introduction
II. Voluntarism and Policy in the High Court
III. ‘Two-Party’ Cases: The ‘Barwick Test’
IV. ‘Three Party’ Cases—Into the Wasteland
V. Conclusions
Appendix
Index

Citation preview

hart Studies in Private Law

THE LAW OF MISSTATEMENTS 50 Years on from Hedley Byrne v Heller

Edited by Kit Barker, Ross Grantham and Warren Swain

THE LAW OF MISSTATEMENTS 2013 was the 50th anniversary of the House of Lords’ landmark decision in Hedley Byrne v Heller. This international collection of essays brings together leading experts from five of the most important jurisdictions in which the case has been received (the United Kingdom, the United States, New Zealand, Canada and Australia) to reappraise its implications from a number of complementary perspectives—historical, theoretical, conceptual, doctrinal and comparative. It explores modern developments in the law of misstatement in each of the jurisdictions; examines the case’s profound effects on the conceptual apparatus of the law of negligence more generally; explores the intersections between misstatement liabilities in contract, tort, equity and under statutory consumer protection provisions; and critically assesses the ways in which advisor liabilities have come to be limited and distributed under systems of ‘joint and several’ and ‘proportionate’ liability respectively. Inspired by Hedley Byrne, the purpose of the collection is to reflect on the case’s echoes, effects and analogues throughout the private law and to provide a platform for thinking about the ways in which liabilities for misstatement and pure economic loss should be modelled in the modern day. Volume 14 in the series Hart Studies in Private Law

The Law of Misstatements 50 Years on from Hedley Byrne v Heller

Edited by

Kit Barker Ross Grantham and Warren Swain

OXFORD AND PORTLAND, OREGON 2015

Published in the United Kingdom by Hart Publishing Ltd 16C Worcester Place, Oxford, OX1 2JW Telephone: +44 (0)1865 517530 Fax: +44 (0)1865 510710 E-mail: [email protected] Website: http://www.hartpub.co.uk Published in North America (US and Canada) by Hart Publishing c/o International Specialized Book Services 920 NE 58th Avenue, Suite 300 Portland, OR 97213-3786 USA Tel: +1 503 287 3093 or toll-free: (1) 800 944 6190 Fax: +1 503 280 8832 E-mail: [email protected] Website: http://www.isbs.com © The editors and contributors 2015 The editors and contributors have asserted their right under the Copyright, Designs and Patents Act 1988, to be identified as the authors of this work. Hart Publishing is an imprint of Bloomsbury Publishing plc. All rights reserved. No part of this publication may be reproduced, stored in a retrieval system, or transmitted, in any form or by any means, without the prior permission of Hart Publishing, or as expressly permitted by law or under the terms agreed with the appropriate reprographic rights organisation. Enquiries concerning reproduction which may not be covered by the above should be addressed to Hart Publishing Ltd at the address above. British Library Cataloguing in Publication Data Data Available ISBN: 978-1-84946-863-3 ISBN (ePDF): 978-1-50990-187-6

PREFACE

The House of Lords’ landmark decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd marked its 50th anniversary in 2013. The case is one of the main landmarks of English private law in the twentieth century and has been greatly influential in shaping thinking in a number of Commonwealth jurisdictions. This international collection of essays brings together leading experts from five of the world’s most important common law jurisdictions (the United Kingdom, the United States, New Zealand, Canada and Australia) to reappraise the case’s implications from a number of complementary perspectives—historical, theoretical, doctrinal and comparative. The volume critically explores modern developments in the law of misstatements in each of the five jurisdictions; examines the meaning and influence of the concepts at its heart (‘voluntary assumptions of responsibility’ and ‘reliance’); explores the intersections between modern misstatement liabilities in contract, tort, equity and under statute; and examines the way in which liabilities are now distributed between advisors and others responsible for financial losses under systems of ‘joint and several’ and ‘proportionate’ liability respectively. As well as making concrete suggestions for the better formulation of misstatement rules and remedies, it also canvasses debates about the respective roles of ‘rights’ and ‘welfare’ in tort law; about the respective boundaries of tort and contract; and about the appropriateness or otherwise of courts using tort as a mechanism for the regulation of economic and information markets. Inspired by Hedley Byrne, the purpose of the collection is thus to reflect on the case’s echoes, effects and analogues throughout the law of obligations and to provide a platform for thinking about the ways in which liabilities for misstatement and pure economic loss should be modelled in the problematic conditions of the modern day. It makes a significant contribution to this enterprise.

ACKNOWLEDGEMENTS

This book came about as the result of a symposium jointly hosted by the Australian Centre of Private Law in the TC Beirne School of Law, the University of Queensland and the Bar Association of Queensland in Brisbane on 24 July 2014. Some of the papers were presented on that day and others were solicited independently by the editors in order to complement the many themes explored on that occasion. We would like to express our gratitude to all those who participated in the very lively and productive day of discussion in Brisbane, and to the Bar Association of Queensland for making its excellent facilities available to us. For their assistance in staging the event, we would like to say a special thank you to Teresa Yat, Jane Gay, Helene Breene and Holly Spencer. We would also like to thank Bill Asquith of Hart Publishing for his enthusiasm for the project and to acknowledge the financial support accorded to the Centre of Private Law by the University of Queensland, which made the event—and hence the book—possible. Kit Barker, Ross Grantham and Warren Swain January 2015

CONTENTS

Preface .........................................................................................................................v Acknowledgements ................................................................................................... vii List of Contributors ................................................................................................... xi Table of Cases .......................................................................................................... xiii Table of Legislation.............................................................................................. xxxiii

Part 1: Issues 1. Hedley Byrne v Heller: Issues at the Beginning of the Twenty-First Century..........................................................................................3 Kit Barker Part 2: History, Concepts and Theory 2. Hedley Byrne v Heller in Australia: ‘Never has there been such a Judicial Jamboree’ .........................................................................29 Warren Swain 3. The Assumption of Responsibility ...................................................................49 Andrew Robertson and Julia Wang 4. The Basis of the Hedley Byrne Action ..............................................................83 Allan Beever 5. The Curious Incident of the Dog that did Bark in the Night-Time: What Mischief does Hedley Byrne v Heller Correct? .....................................111 David Campbell Part 3: Intersections and Distributions of Liability 6. Equity as Tort? .................................................................................................135 Paul Finn 7. Limitations on Defendant Liability for Misleading or Deceptive Conduct Under Statute: Some Insights from Negligent Misstatement ..................................................................................159 Elise Bant and Jeannie Paterson 8. Advisor Liability: Claims for Contribution or Reimbursement Between an Advisor and the Advisee’s Contract-Partner .............................191 Sirko Harder

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Contents

Part 4: Comparative Perspectives 9. What are We Doing Here? The Relationship Between Negligence in General and Misstatements in English Law .........................223 Christian Witting 10. Negligent Misstatement in the United States ..............................................245 Jay M Feinman 11. Hedley Byrne: Misused, then Exiled by the Supreme Court of Canada ......................................................................................................261 Bruce Feldthusen 12. Liability Under Hedley Byrne for ‘Pre-Contract’ Negligent Misrepresentation: A New Zealand Perspective .........................291 David McLauchlan 13. Negligent Misstatement in Australia—Resolving the Uncertain Legacy of Esanda .........................................................................319 Kit Barker

Appendix .................................................................................................................345 Index .......................................................................................................................359

LIST OF CONTRIBUTORS

Elise Bant is Professor of Law at the University of Melbourne, Australia. Kit Barker is Professor of Law at the TC Beirne School of Law, The University of Queensland, Australia. Allan Beever is Professor of Law at Auckland University of Technology, New Zealand. David Campbell is Professor of Law at Lancaster University, The United Kingdom. Jay M Feinman is Distinguished Professor of Law at Rutgers University, The United States of America. Bruce Feldthusen is Professor of Law and former Dean of the Faculty of Law at the University of Ottawa, Canada. The Hon Paul Finn is a Professorial Fellow at the University of Melbourne and a former judge of the Federal Court of Australia. He is also a distinguished member of the Australian Academy of Law. Sirko Harder is a Reader in Law at The University of Sussex, The United Kingdom. David McLauchlan is Professor of Law at Victoria University of Wellington, New Zealand. He is also Professorial Fellow at the University of Melbourne, Honorary Professor at The University of Queensland, and associate member of Stout Street Chambers in Wellington. Jeannie Paterson is Associate Professor of Law at the University of Melbourne, Australia. Andrew Robertson is Professor of Law at the University of Melbourne, Australia. Warren Swain is Professor, Faculty of Law, University of Auckland and Professor, TC Beirne School of Law, University of Queensland. Julia Wang is a solicitor at the Victorian Government Solicitor’s Office, Australia. Christian Witting is Professor of Law at the University of Exeter, The United Kingdom.

TABLE OF CASES

Australia ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65 ............................................................................................. 326, 337, 342 Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353 ...........................................................159 Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 ..................................................................................... 193, 194 Allan v Gotch (1883) 9 VLR 371 (VCA) 375 .........................................................................35 Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568 .................................................................................................. 180, 181 Ardlethan Options Ltd v Easdown (1915) 20 CLR 285 ......................................................169 Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112 ...............................186 Arnott v Choy [2010] NSWCA 259 .....................................................................................169 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 304 ALR 186 ........................... 172, 173, 175, 176, 177–178 Bak v Glenleigh Homes Pty Ltd [2006] NSWCA 10 ...........................................................169 Barclay v Penberthy (2012) 246 CLR 258 ..............................................................................46 Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 .......................................................................209 Belan v Casey [2003] NSWSC 159; (2003) 57 NSWLR 670 ...............................................194 Bennett v Elysium Noosa Pty Ltd (in Liq) (2012) 202 FCR 72 ..........................................174 Bernie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 ...................................44 Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 (FCAFC) .......................................................197 BMW Australia Finance Ltd v Miller Insurance Broking Pty Ltd [2009] VSCA 117 .................................................................................................326 Breen v Williams (1996) 186 CLR 71 ...................................................................................148 Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36 .......................................................................................... 5, 340 Brown v Smitt (1924) 34 CLR 160 .........................................................................................35 Bryan v Maloney (1995) 182 CLR 609 ..................................................................... 43, 44, 162 BT Australia Ltd v Raine & Horne Pty Ltd [1983] NSWLR 22 (SC) ................................................................................................................338 Bull v Attorney-General (NSW) (1913) 17 CLR 370 ..........................................................173 Burke v LFOT Pty Ltd [2002] HCA 17; (2002) 209 CLR 282 ....................... 194, 212–13, 217 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592 ..................... 173, 174, 176, 177 Caffey v Leatt-Heyter (No 3) [2013] WASC 348 ......................................................... 170, 187 Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136 CLR 529 ..............................................................................31, 38, 39, 40, 41, 43, 86, 161, 162, 319 Caltex Refineries (Qld) Pty Limited v Stavar [2009] NSWCA 258 ........................47, 341–42

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Table of Cases

Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 .............................................................................................. 173, 175, 176, 338 Campomar Sociedad Limitada v Nike International Limited (2000) 202 CLR 45 ..............................................................................................176 Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [1986] 1 AC 1 (PC) ............................................................................... 40, 41, 282 Cape v McIntosh [1835] NSWSupC 15 .................................................................................34 Capita Financial Group Ltd v Rothwells Ltd (1993) 30 NSWLR 619 (CA) ........................................................................................................193 Carter v Delgrave Holdings Pty Ltd [2013] FCCA 738 .......................................................170 Castlereigh Motels Ltd v Davies-Roe (1967) 67 SR (NSW) 279 (CA) ...............................................................................................................137 CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd (2005) ASAL ¶55–139..........................................................................................175 Chandra & Another v Perpetual Trustees Victoria Ltd and Others [2007] NSWSC 694 ..............................................................................................332 Charben Haulage Pty Ltd v Environmental & Earth Sciences Pty Ltd [2004] FCA 403 ......................................................................................320, 336–37 Chew v Amanatidis [2009] SASC 334 ..................................................................................165 City of Botany Bay v Jazambas [2001] NSWCA 94 .............................................................326 Columbia Coffee & Tea Pty Ltd v Churchill (1992) 29 NSWLR 141 .................................322 Commercial and General Insurance Co Ltd v Government Insurance Office of NSW (1973) 129 CLR 374 ...............................................................194 Commonwealth Bank of Australia v Smith (1991) 42 FCR 390.........................................154 Cook v Cook (1986) 162 CLR 376 .........................................................................................44 Cornwall v Rowan (2004) 90 SASR 269 (SAFC) .................................................................333 Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460 ..................................193 Crimmins v Stevedore Industry Financing Committee (1999) 200 CLR 1 ................................................................................................ 45, 319, 341 Curwen v Yan Yean Land Co Ltd (1891) 17 VLR 745 (CA) ..................................................35 Dale v Veda Advantage Information Services & Solutions Ltd [2009] FCA 305 ..........................................................................................................332 Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216; (2007) 164 FCR 450 ...........................................................................207 De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2012] FCAFC 28 ...................................................................................................... 164, 175 De Sousa v Cooper (1992) 106 FLR 79 (NTSC) 81.............................................................195 Dent v Lyons [1841] NSWSupC 108......................................................................................34 Dent v Lyons [1842] NSWSupC 11........................................................................................34 Derring Lane Pty Ltd v Fitzgibbon [2007] VSCA 79 .................................................. 337, 338 Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32 .................................................173 Dillingham Constructions Pty Ltd v Downs [1972] 2 NSWLR 49 ....................................298 Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 168 (VCA) .................................................................................................................158 Dominion Freeholders Ltd v Aird, Spargo (1966) 67 SR (NSW) 150 (NSWCA) ............................................................................................................... 36, 37 Duke Group Ltd (in liq) v Pilmer (1998) 144 FLR 1 (SASC) .............................................197 EK Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 ................................. 150, 157

Table of Cases

xv

Ellis v Cuthbert [1829] NSWSupC 61....................................................................................32 Ellul and Ellul v Oakes (1972) 3 SASR 377 .................................................................. 297, 298 Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498..............................................................190 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241; (1997) 142 ALR 750.......................................... 43, 44, 161, 164, 165, 166, 265, 270, 320, 322, 324, 326, 330, 332, 333, 334–36, 337 Fisher v Yeomans [1841] NSWSupC 80 .................................................................................34 French Knit Sales Pty Ltd v N Gold & Sons Pty Ltd [1972] 2 NSWLR 132 (NSWCA) ...................................................................................................38 Friend v Brooker [2009] HCA 21; (2009) 239 CLR 129 .....................................................194 Fudlovski v JGC Accounting & Financial Services Pty Ltd [2013] WASC 301..............................................................................................................210 Fulton Hogan Construction Pty Ltd v Grenadier Manufacturing Pty Ltd [2012] VSC 358 ....................................................................................................207 Futuretronics v Gadzhis [1992] 2 VR 217 ...........................................................................174 Gala v Preston (1991) 172 CLR 243 ................................................................................. 41, 44 GEJ & MA Geldard Pty Ltd v Mobbs (No 2) [2011] QSC 33; [2012] 1 Qd R 120.............................................................................................................209 General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164 ........................................................................................................................173 Giller v Procopets (No 2) (2009) 24 VR 1.................................................................... 152, 154 Giumelli v Giumelli (1995) 196 CLR 101 .................................................................... 148, 153 GJ Knight Holdings Pty Ltd v Warringah Shire Council [1975] 2 NSWLR 796 (NSWSC) ........................................................................................38 Glazier v Australian Men’s Health (No 2) [2001] NSWSC 6 ..............................................147 Gould v Vaggelas (1985) 157 CLR 215 ................................................................... 35, 164, 167 Greater Pacific Investments Pty Ltd (in liq) v Australian National Investments Ltd (1996) 39 NSWLR 143 ..........................................................157 Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 ....................... 148, 154, 157 Hargrave v Goldman (1963) 110 CLR 40 ..............................................................................36 Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 (CA)...............................................157 Havyn Pty Ltd v Webster (2005) ASAL ¶55–143 ......................................................... 160, 179 Hawkins v Clayton (1988) 164 CLR 539........................................................................ 44, 322 Hay Property Consultants Pty Ltd v Victorian Securities Corporation Limited [2010] VSCA 247 .................................................................. 180, 183 Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546 ....................................................................................... 175, 189 Henville v Walker (2001) 206 CLR 459 ....................................................... 160, 170, 171, 172, 176, 179, 180, 181, 182, 183, 185, 186, 188 HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31; (2011) 244 CLR 72 ................................................................................194 Hill v Van Erp (1997) 188 CLR 159............................... 42, 43, 44, 75, 161, 162, 163, 322, 332 HTW Valuers Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640 .............................................................................................................. 167, 182 Hull v Canterbury Municipal Council [1974] 1 NSWLR 300 (NSWSC) .......................................................................................................38

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Table of Cases

Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10; (2013) 247 CLR 613 ............. 24, 196, 208, 210, 214–17, 219, 341 I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 ............................................................ 167, 171, 179, 180, 181, 182, 183, 185, 186, 187, 188 ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248......................................................................................173 Insurance Commission of Western Australia v Kightly [2005] WASCA 154; (2005) 30 WAR 380 ........................................................................198 Interchase Corporation Ltd (in liq) v Grosvenor Hill (Qld) Pty Lty No 3 [2001] QCA 191 ..........................................................................................333 Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 5 ALR 527 (NSWSC); [1975] 6 ALR 445 (NSWSC) ............................................................................................152 Ithaca Ice Works Pty Ltd v Queensland Ice Supplies Pty Ltd [2002] QSC 222......................................................................................................... 156, 157 Jaensch v Coffey (1984) 155 CLR 549 ............................................................................ 41, 292 James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR .........................................194 Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27 ..............................................5 Jones v Edwards (1994) 3 Tas R 350.....................................................................................169 Jones v Mortgage Acceptance Nominees Ltd (1996) 63 FCR 418 (FCA) ............................................................................................................197 Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 ..........................................................................................................169 Kayteal Pty Ltd v Dignan [2011] NSWSC 197, (2011) 15 BPR 29,515 ........................................................................................................... 198, 208 Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 ........................................................................................ 44, 160, 171, 322, 333 Kestrel Holdings Pty Ltd v APF Properties Pty Ltd [2009] FCAFC 144; (2009) 260 ALR 418................................................. 213, 326, 332, 342 Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281 ....................................................160 Levi v Colgate-Palmolive (1941) 41 SR NSW 48 (NSWSC) .................................................35 Lovick & Son Developments Pty Ltd v Doppstadt Australia Pty Ltd [2012] NSWSC 529..............................................................................................209 Lowns v Woods (1996) Aust Torts Rep 81-376......................................................................68 Lyons v Isler [1841] NSWSupC 59 .........................................................................................34 Magill v Magill (2006) 226 CLR 551 ......................................................................................35 Maguire v Makronis (1996) 188 CLR 449 ................................................................... 154, 156 Mahoney v McManus (1981) 180 CLR 370 ................................................................. 193, 195 Major v Bretherton (1928) 41 CLR 62 ...................................................................................35 Makawe Pty Ltd v Randwick City Council [2009] NSWCA 412 .................................................................................................................. 5, 334 Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494 .............................................................................................. 160, 171, 173, 180 Maxton & Maxton Australia Pty Ltd v Port Village Accommodation Pty Ltd [2012] FMCA 143 ...................................................................170 Maye v Colonial Mutual Life Assurance (1924) 35 CLR 14 ..................................................35 Mbakwe v Sarkis [2009] NSWCA 330 .................................................................................326

Table of Cases

xvii

McBride v Christio’s Australia Pty Ltd [2014] NSWSC 1729 .............................................217 McGrath v Australian Natural Products Pty Ltd (2008) 165 FCR 230 ..............................174 McKenzie v McDonald [1927] VLR 134 ........................................................................ 35, 148 Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97 ..................................................187 Metzke (t/as Metzke & Allen) v Sali [2010] VSCA 267 .......................................................210 Miller & Associates Insurance Broking v BMW Australia Finance (2010) 241 CLR 357 ............................................................ 170, 171, 176, 177, 326 Miller v Miller (2011) 242 CLR 446 .....................................................................................190 Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390, (2011) 16 BPR 30,189 ...............................................................................................215 Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 136 CLR 414 ..........................................................................................................151 Morrison-Knudsen International Co Inc v The Commonwealth (1972) 46 ALJR 265 (HCA) ..............................................................................................338 Mouritz v Hegedus [1999] WASCA 1061 ............................................................................169 Munce v Vinidex Tubemakers Pty Ltd [1974] 2 NSWLR 235 ............................................169 Murphy v Overton Investments Pty Ltd [2004] HCA 3; (2004) 216 CLR 388 .................................................................................................. 171, 211 Muschinski v Dodds (1985) 160 CLR 583 ................................................................... 158, 193 Mutual Life & Citizens’ Assurance Co Ltd v Evatt [1967] 2 NSWR 465 (NSWCA); (1968) 122 CLR 556 (HCA); [1971] AC 793 (PC) .....................................................18, 37, 40, 45, 163, 165, 242, 297, 298, 309, 322, 324, 325–26, 327, 328, 329, 334, 338, 342 New South Wales Trotting Club Ltd v Council of the Municipality of Glebe (1937) 37 SR (NSW) 288 ............................................................146 Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd (2005) 215 ALR 625 ......................................................................................175 Norcast SARL v Bradken Ltd (No 2) (2013) 302 ALR 486 .................................................170 North East Equity Pty Ltd v Proud Nominees Pty Ltd (2010) 269 ALR 262 ..........................................................................................................174 O’Halloran v RT Thomas and Family Pty Ltd (1998) 45 NSWR 262 ........................ 155, 156 Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 (SC) .............................................................................................195 Optus Networks Pty Ltd v Leighton Contractors Pty Ltd [2002] NSWSC 327 ...........................................................................................................195 P & O Steam Navigation Co v Johnson (1938) 60 CLR 189 ...............................................148 Palmer Bruyn & Parker v Parsons (2001) 208 CLR 388 ......................................................167 Paramaswam v Flynn (1978) 160 ALR 203..........................................................................153 Parkdale Customer Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191 .......................................................................... 160, 170, 171, 172, 176 Paternoster v Hackett (1880) 6 VLR 232; (1880) 7 VLR 396 (VCA) ....................................35 Pavich v Bobra Nominees Pty Ltd (1988) ASC 55–684 ......................................................186 Peek Frean (Australia) Pty Ltd v IBM Australia Pty Ltd [1966] 1 NSWLR 120 (NSWSC) ....................................................................................................36 Pennington v Norris (1956) 96 CLR 10 ...............................................................................168 Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 .................................147 Perpetual Trustee Co Ltd v CTC Group Pty Ltd (No 2) [2013] NSWCA 58 .....................207

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Table of Cases

Perre v Apand Pty Ltd [1999] HCA 36; (1999) 198 CLR 180 ................................................................................ 5, 42, 45, 46, 161, 162, 163, 165, 166, 190, 282, 319, 341, 342, 343 Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529 (HCA) ...........................................................................................................168 Polon v Dorian [2014] NSWSC 571 ....................................................................................326 Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25...............................................173 Potts v Miller (1940) 64 CLR 282 ................................................................................. 167, 182 Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471 ...................................................298 Pyrenees Shire Council v Day (1998) 192 CLR 330 ...................................................... 44, 334 R Lowe Lippmann Figdor and Franck v AGC (Advances) Ltd [1992] 2 VR 671.......................................................................................... 335, 339, 340 Razdan v Westpac Banking Corporation [2014] NSWCA 126 ...........................................175 Reg v Federal Court of Australia; Ex parte Pilkington ACI (Operations) Pty Ltd (1978) 142 CLR 113 ......................................................................160 Reinhold v NSW Lotteries Corporation (No 2) [2008] NSWSC 187, (2008) 82 NSWLR 762 ....................................................................... 207, 209 Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477 ...............................................................................................175 Robinson v Abbott (1894) 20 VLR 346 (VCA)......................................................................35 Rural Bank of New South Wales v King Unreported, 25 July 1966 ....................................297 San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340 ....................................................................................20, 41, 44, 161, 162, 163, 164, 165, 233, 322, 326, 327, 329–31, 334, 335, 337 Serong v Dependable Developments Pty Ltd [2009] VCAT 760 ........................................207 Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225 ........................................................................ 40, 162, 165, 322 Shaddock & Associates Pty Ltd v Parramatta City Council (No 2) (1983) 151 CLR 590 ...................................................................................... 326, 327 Sibley v Grosvenor (1916) 21 CLR 469 ..................................................................................35 Sidhu v Van Dyke [2014] HCA 19................................................................................ 150, 157 Sinclair v Cleary [1946] ST R Qd 74 (QLDSC) .....................................................................35 Sky Channel Pty Ltd v Tszyu (No 2) [2000] NSWSC 1150 ................................................197 Smith v Glegg [2005] 1 Qd R 561 ........................................................................................150 Smith, Kline & French Laboratories (Australia) Ltd v Secretary Department of Community Services & Health (1990) 22 FCR 73 ..............................................................................................................152 Solak v Bank of Western Australia Ltd [2009] VSC 82; [2010] VSCA 355; (2010) 31 VR 46 .................................................................................207 South Australia v Johnson (1982) 42 ALR 161 ....................................................................167 Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd [2009] WASCA 31; (2009) 253 ALR 364 ................................... 193, 198 Spiteri v Stonehenge Homes & Associates Pty Ltd [2011] VCAT 2267 ............................................................................................................207

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St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245, (2009) 25 VR 666 ............................................................................. 200, 202, 207–208, 209, 210, 216, 218 State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228 ........................................................................198 Stevens v Brodribb Sawmilling Pty Ltd (1986) 160 CLR 16 ........................................... 41, 42 Stewart v Foulkes [1845] NSWSupC 4 ..................................................................................34 Stuart v Foulkes [1847] NSWSupC 54 ...................................................................................34 Sullivan v Moody (2001) 207 CLR 562 .......................................................... 44, 332, 333, 340 Sutherland Shire Council v Heyman (1985) 157 CLR 424 .............................................................................41, 42, 93, 162, 165, 166, 286 Talbot v General Television Corp Pty Ltd [1980] VR 224........................................... 152, 157 Tanwar Enterprises Ltd v Cauchi (2003) 217 CLR 315 .......................................................139 Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565.......................................186 Tepko Pty Ltd v Water Board (2001) 206 CLR 1 ............................................................................................ 45, 164, 165, 322, 328–29, 333, 334, 337 Thomas v SMP (International) Pty Ltd (No 4) [2010] NSWSCR 984 ........................................................................................................156 Ting v Blanche (1993) 118 ALR 543 ....................................................................................174 Toteff v Antonas (1952) 87 CLR 647 ....................................................................................167 Travel Compensation Fund v Tambree (2005) 224 CLR 627 ........................................................................ 161, 167, 172, 180, 181, 184–85 Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 ...............................................................................................44 Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118.....................................................36 Valcorp Australia Pty Ltd v Angas Securities Limited [2012] FCAFC 22 ..............................................................................................................187 Victoria Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479 (HCA) 505 .....................................................................36 Voli v Ingewood Shire Council (1963) 110 CLR 74 ..............................................................35 W Scott, Fell & Co Ltd v Lloyd (1906) 4 CLR 572 ..............................................................138 Walker v Veda Advantage Information Services and Anor [2011] QSC 316 .......................................................................................................332 Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 ..................................... 14, 150 Wardley Australia Ltd v Western Australia (1992) 175 CLR 514 ...................................................................................................... 170, 179, 180 Warman International Ltd v Dwyer (1995) 182 CLR 544 ..................................................148 Wayne Garry Meredith v Commonwealth of Australia (No 2) [2013] ACTSC 221 ................................................................................................326 Wealthsure Pty Ltd v Selig [2014] FCAFC 64 ......................................................................210 Webb Distributors (Australia) Pty Ltd v Victoria (1993) 179 CLR 15 ...............................173 Woods v De Gabriele [2007] VSC 177 .................................................................................210 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515 .................................................................................................................. 5, 166 Woollahra Municipal Council v Sved (1996) 40 NSWLR 101................................................4 Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484 ...................................... 153, 155, 156

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Canada BDC Ltd v Hofstrand Farms Ltd [1986] 1 SCR 228 ........................................... 261, 263, 268 BG Checo International Ltd v British Columbia Hydro and Power Authority [1993] 1 SCR 12 .................................................................... 261, 264 Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd [1997] 3 SCR 1210 ..................................................................... 262, 265, 282, 283, 284 Brickenden v London Loan and Savings Company [1934] 3 DLR 465 (PC) ............................................................................................ 147, 156 Cadbury Schweppes Inc v FBI Food Ltd (1999) 167 DLR (4th) 577 (SCC) ................................................................................................................153 Canadian Aero Services Ltd v O’Malley (1974) 40 DLR (3rd) 371 (SCC) ................................................................................................................147 Canadian National Railway Co v Norsk Pacific Steamship Co Ltd [1992] 1 SCR 1021................................................................... 84, 93, 262, 265, 266, 268, 282, 283, 285 Canadian Pacific Railway Co v The King [1931] AC 414 (PC) ..........................................146 Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 (SCC) ................................................................................................................155 Carman Construction Ltd v Canadian Pacific Railway Co [1982] 1 SCR 958 ..............................................................................................................261 Central Trust Co v Rafuse [1986] 2 SCR 147; (1986) 31 DLR (4th) 481 ................................................................................................... 261, 262, 306 Childs v Desormeaux 2006 SCC 18, [2006] 1 SCR 643 ................................................ 68, 268 Cooper v Hobart [2001] 3 SCR 537 ..................................................... 263, 264, 268, 269, 288 Dusik v Newton (1985) 62 BCLR 1 (CA) ............................................................................150 Edgeworth Construction Ltd v ND Lea & Associates Ltd [1993] 3 SCR 206 ...................................................................................... 108, 261, 262, 264 Fletcher v Manitoba Public Insurance Co [1990] 3 SCR 191 ..................................... 261, 262 Fullowka v Pinkerton’s of Canada Ltd [2010] 1 SCR 132 ...................................................283 Galambos v Perez (2009) 312 DLR (4th) 220 (SCC) ..........................................................147 Giradet v Crease & Co (1987) 11 BCLR (2d) 361 (SC) ......................................................147 Glennie v McDougall & Cowens Holdings Ltd [1935] SCR 257 ........................................147 Haig v Bamford [1977] 1 SCR 466 ............................................................... 261, 262, 263, 270 Haskett v Trans Union of Canada Inc (2003) 63 OR (3d) 577 (CA)....................................................................................................................268 Hercules Management v Ernst & Young [1997] 2 SCR 165 ................................... 14, 93, 261, 262, 263, 264, 265–70, 273, 277, 278, 279, 281, 283, 284, 288, 289, 332 Hodgins v Nepean (Township) Hydro-Electric Commission [1976] 2 SCR 501 ...................................................................................................... 261, 262 Hodgkinson v Simms (1994) 35 SCR 377 ...........................................................................155 Horsley v MacLaren (The Ogopogo) [1972] SCR 441..............................................69, 96–97 J Nunes Diamonds Ltd v Dominion Electric Protection Co [1972] SCR 769 ......................................................................................................... 261, 262 Kamloops (City) v Nielsen [1984] 2 SCR 2 ................................................................. 261, 263 King v Piggott (1859) 3 SCR 66..............................................................................................34

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London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299 ..............................................................................................................108 M(K) v M(H) [1992] 3 SCR 6 ..............................................................................................154 Micron Construction Ltd v Hong Kong Bank of Canada (2000) 184 DLR (4th) 75 (BCCA) ...............................................................................................338 Norberg v Weinrib [1992] 2 SCR 226 ..................................................................................154 Pettkus v Becker (1980) 117 DLR (3d) 257 (SCC) ..............................................................157 Proprietary Mines Ltd v MacKay [1939] 3 DLR 215 (SCC) ..........................................................................................................................147 Queen v Cognos [1993] 1 SCR 87................................................................................ 261, 262 R v Imperial Tobacco Canada Ltd [2011] 3 SCR 45 .............................................................................. 261, 263, 265, 266, 279–80, 284 Rick v Brandsema (2009) 303 DLR (4th) 193 (SCC) ..........................................................150 Rivtow Marine Ltd v Washington Iron Works and Walkem Machinery & Equipment Ltd [1974] SCR 1189 ............................... 282, 285, 286 Sealand of the Pacific v Ocean Cement Ltd (1973) 33 DLR (3d) 625 ............................................................................................... 298, 299, 301 Sealand of the Pacific v Robert C McHaffie Ltd (1975) 51 DLR (3d) 702 (BCCA) .................................................................................................299 Soulsby v City of Toronto (1907) 15 OLR 13 ........................................................................72 The Queen v Nord-Deutsche Versicherungs-Gesellschaft [1971] SCR 849 ...................................................................................................................73 Treadwell v Martin (1976) 67 DLR (3d) 493 (NBCA) ........................................................150 VK Mason Construction Ltd v Bank of Nova Scotia [1985] 1 SCR 271 .................... 261, 262 Walter Cabott Construction Ltd v The Queen (1974) 44 DLR (3d) 82 .............................298 Welbridge Holdings Ltd v Greater Winnipeg [1971] SCR 957 ................................... 261, 262 Winnipeg Condominium Corporation No 36 v Bird Construction Co [1995] 1 SCR 85 .......................................................... 261, 262, 264, 265, 266, 282, 285, 286–87 Fiji Chalmers v Pardoe [1963] 1 WLR 677 (PC) .......................................................................146 New Zealand AG v Carter [2003] 2 NZLR 160 (CA) ........................................................... 84, 92, 95, 107–9 Altimarloch Joint Venture Ltd v Moorhouse, HC Blenheim, CIV-2005-406-91, 23 March 2009 ...........................................................203 Aquaculture Corp v NZ Green Mussel Co Ltd [1990] 3 NZLR 299 (CA)...................................................................................................... 150, 152 Bank of New Zealand v New Zealand Guardians Trust Co Ltd [1999] 1 NZLR 664 (CA) .....................................................................................154 Capital Motors Ltd v Beecham [1975] 1 NZLR 576...................... 297, 298, 299–301, 313–14 Coffey v Dickson [1960] NZLR 1135...................................................................................292 Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15 .....................................................................318 Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295 (PC) ..........................................................................................................137

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Edwards v Proprius Holdings Ltd [2009] NZHC 689......................................... 193, 194, 195 Goldsbro v Walker [1993] 1 NZLR 394 ...............................................................................317 Kemp v Dalziel [1956] NZLR 1030 ......................................................................................292 Lee, Kim and Beveridge as Trustees of the Roy Family Trust v North Shore City Council [2010] NZHC 498 ....................................................203 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] 2 NZLR 726 (SC)........................................ 200, 201, 202, 203, 315–16 Mid-Northern Fertilisers Ltd v Connell, Lamb, Gerard & Co, unreported, 18 Sept 1996 (NZHC) ...........................................................156 Mouat v Clark Boyce (No 2) [1992] 2 NZLR 559 (CA) ......................................................154 Plummer-Allinson v Spencer L Ayrey Ltd [1976] 2 NZLR 254 ..........................................297 Scott Group Ltd v McFarlane [1978] 1 NZLR 553 (CA) ............................................ 108, 165 Turner v Anquetil [1953] NZLR 952 ...................................................................................292 X v Attorney-General [1997] 2 NZLR 623 ..........................................................................154 Singapore Anwar v Ng Chong & Hue LLC [2014] SGCA 34, [2014] 3 SLR 761 ............................. 50, 67 United Kingdom AB v A Chief Constable [2014] EWHC 1965 ........................................................................63 Abernethy v Hutchinson (1825) 1 H & Tw 28; 47 ER 1313 ................................................151 Alexandrou v Oxford [1993] 4 All ER 328.............................................................................69 Al-Kandari v J R Brown & Co [1988] QB 665 (CA) .............................................................76 American Surety Co of New York v Wrightson (1910) 27 TLR 91 (KB) .....................................................................................................193 An Informer v A Chief Constable [2012] EWCA Civ 197; [2013] QB 579 ......................................................................................................79 Anns v Merton London Borough Council [1978] AC 728 ....................................................................... 40, 41, 261, 262, 263, 264, 266, 267, 268, 269, 271, 279, 282, 285, 286, 287, 288 Anson v Anson [1953] 1 QB 636 (QB) ................................................................................195 Arnott v Biscoe (1743) 1 Ves Sen 95; 27 ER 914 ..................................................................140 Arrowhead Capital Finance Ltd (in liq) v KPMG LLP [2012] EWHC 1801 (Comm), [2012] STC 2503.............................................................200 Asif v City (Europe) Ltd (Ch, 25 June 2002) .........................................................................74 Attorney-General for England and Wales v Observer Ltd (No 2), sub nom Attorney General v Guardian Newspapers (No 2) [1990] 1 AC 109 ...................................................... 137, 151 Avora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd [2012] EWHC 2198 .........................................................................................63 Bagot v Stevens Scanlon & Co Ltd [1966] 1 QB 197 ................................................... 304, 305 Bain v Fothergill (1874) LR 7 HL 158 ..................................................................................199 Bale v Cleland (1864) 4 F & F 117, 176 ER 494 .....................................................................32 Balkis Consolidated Ltd v Tomkinson (1893) 42 WR 204 ..................................................144 Banbury v Bank of Montreal [1918] AC 626 ................................................................... 53, 70

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Bank of Credit and Commerce International (Overseas) Ltd (In Liquidation) v Price Waterhouse (No 2) [1998] PNLR 564 ..............................323 Bank of Ireland v Faithful & Gould Ltd [2014] EWHC 2217 (TCC), [2014] PNLR 664 .................................................................................................194 Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 ................................................................................................................197 Barrett v Ministry of Defence [1995] 1 WLR 1217 (CA) ................................................ 70, 71 Batty v Metropolitan Property Realisations Ltd [1978] QB 554 ........................................305 Becton Dickinson UK Ltd v Zwebner [1989] 1 QB 208 (QB) ............................ 195, 196, 197 Bennett v Tugwell [1971] 2 QB 267 .......................................................................................64 Berghoff Trading Ltd v Swinbrook Developments Ltd [2009] EWCA Civ 413; [2009] 2 Lloyd’s Rep 233........................................................................195 Birch v Thomas [1972] 1 WLR 294........................................................................................64 Bisset v Wilkinson [1927] AC 177 ........................................................................................311 Boorman v Brown (1844) 11 Cl & Fin 1..............................................................................305 BP Petroleum Development Ltd v Esso Petroleum Co Ltd 1987 SLT 345 (CSOH) ......................................................................................................194 Bradford Third Benefit Building Society v Borders [1941] 2 All ER 205 (HL) .............................................................................................................146 Bristol and West Building Society v Mothew [1998] Ch 1..................................................154 British & Commonwealth Holdings plc v Quadrex Holdings Inc [1995] CLC 1169 (CA) ...............................................................................................201 Brook’s Wharf and Bull Wharf Ltd v Goodman Brothers [1937] 1 KB 534 (CA) .......................................................................................................195 Brown v Raphael [1958] Ch 636 ..........................................................................................311 Brownlie v Campbell (1880) 5 AC 925 ................................................................ 138, 143, 146 Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499 (CA) ..................................................................................................... 201, 202 Burnett v British Waterways Board [1972] 1 WLR 1329 ......................................................64 Burrowes v Lock (1805) 10 Ves 470; 32 ER 927 ............................................. 33, 140, 141, 143 Caledonia North Sea Ltd v London Bridge Engineering Ltd 2000 SLT 1123 (CSIH) ......................................................................................................195 Calvert v William Hill Credit Ltd [2008] EWCA Civ 1427; [2009] Ch 330 .....................................................................................................................62 Candler v Crane Christmas & Co [1951] 2 KB 164 (CA) ............................................................................................... 34, 36, 114–117, 125, 126, 127, 129, 130, 241, 245 Cann v Willson (1888) 39 Ch D 39 (Ch) ........................................................... 10, 33, 74, 127 Caparo Industries plc v Dickman [1989] QB 653 (CA); [1990] 2 AC 605 ........................................................................42, 43, 46, 57, 85, 86, 88–90, 94, 98, 227, [228], 229, 235, [237], 238, 241, 242, 265, 270, 323, 332, 334 Capita Alternative Fund Services v Drivers Jonas [2011] EWHC 2336 (Comm)...................................................................................... 74–75 Capital & Counties plc v Hampshire County Council [1997] QB 1004 ............................................................................................................. 68, 70 Carr-Glynn v Frearsons (A Firm) [1999] Ch 326 ......................................................... 75, 323

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Castellain v Preston (1883) 11 QBD 380 (CA) ....................................................................198 Cattle v The Stockton Waterworks Co (1875) LR 10 QB 453 (QB) ............................. 30, 282 Chandler v Cape Plc [2012] EWCA Civ 525; [2012] 1 WLR 3111 ............................... 78, 237 Chaudhry v Prabhakar [1989] 1 WLR 29 ........................................................................ 53, 59 Clark v Kirby-Smith [1964] Ch 506 ............................................................................. 304, 305 Clarke v Bruce Lance [1988] 1 WLR 881 .............................................................................340 Clarke v Dickson (1859) 28 LJNS 225 ...................................................................................32 Clay v AJ Crump and Sons Ltd [1964] 1 QB 533 .......................................................... 34, 234 Clayton v Woodman [1961] 3 All ER 249 (QB) ....................................................................34 Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] QB 488 ............................................................................................................314 Cornelius v De Taranto [2002] EMLR 6 (CA) ....................................................................154 Costello v Chief Constable of the Northumbria Police [1999] 1 All ER 550 (CA) ............................................................................................. 49, 50, 60, 69 Couchman v Hill [1947] KB 554..........................................................................................307 Crabb v Arun District Council [1976] Ch 179 (CA) ..........................................................146 Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28; [2007] 1 AC 181 ................................................................ 43, 57, 58, 223 236–237, 243, 322, 323 D & F Estates Ltd v Church Commissioners for England and Wales [1989] AC 177............................................................................. 42, 266 Dann v Spurrier (1802) 7 Ves 231; 32 ER 94 .......................................................................145 De La Bere v Pearson [1908] 1 KB 280 (CA) .........................................................................44 De Manneville v Crompton (1813) 1 V & B 354; 35 ER 138 ..............................................140 Dean v Allin & Watts [2001] 2 Lloyds Rep 249 ...................................................................323 Derry v Peek (1889) 14 App Cas 337 (HL) ....................................................... 22, 32, 35, 114, 118, 127–130, 137, 143–44, 146, 149, 158, 234, 245, 293, 294 Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER 65 .............................................................................. 292, 310 Dillwyn v Llewelyn (1862) 4 De G, F & J 517; 45 ER 1285 ......................................... 142, 145 Donoghue v Stevenson [1932] AC 562 (HL Sc) ............................................. 3, 31, 33, 34, 38, 52, 68, 82, 83, 86, 88–90, 92, 93, 94, 98, 110, 112, 114, 127, 232–33, 239, 243, 245, 261, 267, 268, 269, 270, 272, 277, 283, 286 Downs v Chappell [1997] 1 WLR 426 (CA) ................................................................. 213–14 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158 ............................................. 164, 167, 169 Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 (HL) ..................................................................................................195 Dutton v Bognor Regis Urban District Council [1972] 1 QB 373 (CA) ........................................................................................................40 E Surv Ltd v Goldsmith Williams Solicitors [2014] EWHC 1104 (Ch); [2014] PNLR 605 ..............................................................................204 Eagle Star Insurance Co Ltd v Gale & Power (1955) 166 EG 37 (QB) ...............................200 Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125; 28 ER 82 ...........................................138 Eastgate Group Ltd v Lindsey Morden Group Inc [2001] EWCA Civ 1446; [2002] 1 WLR 642 .................................... 200, 201, 202, 204, 213

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Electricity Supply Nominees Ltd v Thorn Emi Retail Ltd (1992) 63 P & CR 143 (CA) .......................................................................................195 Elguzouli-Daf v Commissioner of the Police of the Metropolis [1995] QB 335 (CA) ........................................................................................75 Esso Petroleum Co Ltd v Mardon [1975] QB 819; [1976] QB 801 (CA) ..................................................................... 297, 298, 301–5, 306, 311 Evans v Bicknell (1801) 6 Ves 174; 31 ER 998.............................................................. 135, 141 Evans v Edmonds (1853) 13 CB 777, 786, 138 ER 1407 .......................................................32 Ex parte Carr (1814) 3 V & B 108; 35 ER 420......................................................................140 Fegan v Police Service in Northern Ireland [2009] NIQB 51 ...............................................80 First National Commercial Bank plc v Humberts [1995] 2 All ER 673 (CA) .................................................................................................200 First National Commercial Bank Plc v Loxleys [1997] PNLR 211 ..............................................................................................................327 Fisher v CHT Ltd (No 2) [1966] 2 QB 475 (CA) ................................................................195 Floods of Queensferry Ltd v Shand Construction Ltd [2000] BLR 81 (QB)..........................................................................................................211 Ford v Stobridge (1633) Nels 24; 21 ER 780 ........................................................................195 Galliford Try Infrastructure Ltd v Mott Macdonald Ltd [2008] EWHC 1570 (TCC) ................................................................................................63 Gladwell v Steggall (1839) 5 Bing NC 733; 132 ER 1283 ......................................................54 Godin v London Assurance Co (1758) 1 Burr 489; 97 ER 419 ...........................................193 Gorham v British Telecommunications plc [2000] 1 WLR 2129 .......................................323 Graham v Entec Europe Ltd [2003] EWCA Civ 1177 .........................................................198 Gran Gelato Ltd v Richcliff (Group) Ltd [1992] 2 WLR 867 .............................................340 Grieves v FT Everard & Sons [2008] 1 AC 281 ....................................................................239 Hammersley v De Biel (1845) 12 Cl & Fin 45; 8 ER 1312........................... 140, 141, 142, 143 Hampton v Minns [2002] 1 WLR 1 (Ch) 15 ....................................................... 193, 194, 203 Harling v Eddy [1951] 2 KB 739 ..........................................................................................307 Hart v Swaine (1877) 7 Ch D 42 ...................................................................................... 33, 35 Hatzl v XL Insurance Co Ltd [2009] EWCA Civ 223; [2010] 1 WLR 470 .........................198 Heaven v Pender (1883) 11 QBD 503 (CA)...........................................................................33 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) .................................................. 3, 18, 29, 30, 31, 32, 36, 37, 38, 40, 49, 51, 52, 53, 54, 55, 62, 63, 65, 70, 79, 82, 83, 84, 85, 87, 88–95, 97–98, 99, 101–106, 108, 110, 111, 112–113, 115–118, 121, 123, 124, 125–126, 129–132, 135, 147, 159, 161, 164–165, 191, 217, 223, 226, 230–234, 235, 240, 241, 242, 243, 245, 248, 255, 261, 262, 263, 264, 265, 267, 268, 269, 270, 272, 273, 274–75, 276, 277, 278, 281, 282, 283, 284, 285, 288, 292, 293–96, 297, 298, 299, 300, 301, 303, 304, 307, 308, 309, 310, 311, 317, 319, 326, 332, 340 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1962] 1 QB396 (CA) .........................................................................................111, 295–96 Heilbut, Symons & Co v Buckleton [1962] 1 QB 396 (CA) .......................................................................... 291, 293, 294, 295, 296, 303 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 ................................................................................ 42, 58, 118, 119, 120, 123, 125, 147, 236, 237, 240, 305, 306, 322, 323

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Table of Cases

Hill v Chief Constable of West Yorkshire [1989] 1 AC 53............................................... 78, 80 Home Office v Dorset Yacht Co Ltd [1970] AC 1004.................................................. 111, 125 Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574.................................................................... 241, 312 Howkins & Harrison (a firm) v Tyler [2001] PNLR 634 (CA) ......................................................................................... 200, 202, 203, 205 Hunsden v Cheyney (1690) 2 Vern 150; 23 ER 703.............................................................145 In Re City Equitable Fire Insurance Co Ltd [1925] 1 Ch 407 (CA) ...................................................................................................................137 Inwards v Baker [1965] 2 QB 29 (CA) .................................................................................146 Islington LBC v University College London Hospital NHS Trust [2005] EWCA Civ 596; [2006] BLGR 50.......................................................204 J Evans & Sons (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078 ....................................................................................................307 Jackson v Cator (1800) 5 Ves 688; 31 ER 806 ......................................................................145 Jacobus Marler Estates Ltd v Marler (1916) 114 LT 640n (HL) .........................................148 JEB Fasteners Ltd v Marks, Bloom & Co [1981] 3 All ER 289 ............................................168 Jolley v Sutton London Borough Council [2000] 3 All ER 409 (HL) ................................166 Jorden v Money (1854) 5 HLC 185; 10 ER 868 ................................................... 137, 142, 158 Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520 ................................. 31, 41, 42, 119–120 Kammins Ballroom Co Ltd v Zenith Investments (Torquay) Ltd (No 1) [1971] AC 850...............................................................................146 Kapfunde v Abbey National plc [1998] ECC 440 (CA) ................................................. 80–81 Kent v Griffiths [2001] 1 QB 36 .............................................................................................69 Killick v PricewaterhouseCoopers [2001] PNLR 1 ...............................................................74 Kyrris v Oldham [2003] EWCA Civ 1506 ............................................................................323 Lamb v Evans [1893] 1 Ch 218 (CA) ...................................................................................151 Le Lievre v Gould [1893] 1 QB 491 (CA) ................................................ 33, 34, 114, 127, 245 Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd [1986] 1 AC 785.................................................................................................... 41, 282 Lennon v Commissioner of Police of the Metropolis [2004] EWCA Civ 130; [2004] 1 WLR 2594 ......................................................................62 Little v Port Talbot Co (The Apollo) [1891] AC 499..................................................... 34, 234 Loffus v Maw (1862) 3 Giff 592; 66 ER 544 ......................................................... 141, 142, 143 Low v Bouverie [1891] 3 Ch 82 (CA) ........................................................................... 143–44 Lowe & Sons v Dixon & Sons (1885) 16 QBD 455 (QB)` ........................................... 194, 195 Lumley v Robinson [2002] EWCA Civ 94 ................................................................... 193, 194 Maddison v Alderson (1883) 8 App Cas 467 (HL)..............................................................143 Malone v Metropolitan Police Commissioner [1979] Ch 344............................................151 Maunsell v Hedges (1854) 4 HLC 1039; 10 ER 769.............................................................142 McCallion Brothers Ltd v Fisher [2012] NICh 5 ......................................................... 202, 204 McCullagh v Lane Fox & Partners Ltd [1996] PNLR 205 .....................................................63 McInerny v Lloyds Bank Ltd [1974] 1 Lloyd’s Rep 246 ......................................................309 Mendelssohn v Normand Ltd [1970] 1 QB 177 ..................................................................307 Mercer v South Eastern & Chatham Railway Companies’ Managing Committee [1922] 2 KB 549.............................................................................72 Merrett v Babb [2001] QB 1174 (CA) ............................................. 43, 74, 124, 236, 238, 323 Merryweather v Nixan (1799) 8 Term Rep 186; 101 ER 1337 ............................................194

Table of Cases

xxvii

Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 ..................................................................................................... 41, 305, 306 Ministry of Defence v Radclyffe [2009] EWCA Civ 635 .......................................................61 Ministry of Housing and Local Government v Sharp [1970] 2 QB 223 ............................165 Mitchell v Glasgow City Council [2009] UKHL 11, [2009] 1 AC 874 .................................49 Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890 .................................................174 Morgan Crucible Co plc v Hill Samuel & Co Ltd [1991] 1 QB 801 ...................................241 Morrison Steamship Co Ltd v Greystoke Castle (Cargo Owners) [1947] AC 265 .....................................................................................................................31 Moule v Garrett (1872) LR 7 Ex 101 ....................................................................................195 Murphy v Brentwood District Council [1991] 1 AC 398.................. 31, 41, 42, 266, 282, 286 Nationwide Building Society v Dunlop Haywards (DHL) Ltd [2009] EWHC 254 (Comm); [2010] 1 WLR 258 ..................................... 194, 200, 204 Newbigging v Adam (1886) 34 Ch D 582 (CA) ....................................................................33 Nicrotherm Electrical Co Ltd v Percy [1956] RPC 272 (Ch); [1957] RPC 207 (CA) .......................................................................................................151 Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2004] EWCA Civ 487; [2004] 2 All ER (Comm) 289 ................................ 195, 197 Nocton v Lord Ashburton [1914] AC 932 ................................................ 30, 33, 35, 117, 128, 130, 135, 138, 143, 144, 146–50, 153, 155, 158 Nord-Deutsche Versicherungs-Gesellschaft v The Queen [1969] 1 Ex CR 117 .........................................................................................73 North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co (1877) 5 Ch D 569 (CA).........................................193 Norwich City Council v Harvey [1989] 1 WLR 828 (CA) ..................................................118 Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627 (HL)....................................................................... 200, 202 O’Sullivan v Management Agency & Music Ltd [1985] 1 QB 428 (CA) ......................................................................................................150 Old Gate Estates Ltd v Toplis & Harding & Russell (1939) 3 All ER 209 (KB)....................................................................................................34 Oleificio Zucchi SPA v Northern Sales Ltd [1965] 2 Lloyd’s Rep 496 ................................297 OLL Ltd v Secretary of State for Transport [1997] 3 All ER 897 ..........................................69 Omega Trust Co Ltd v Wright Son & Pepper (1998) 75 P & CR 57 .....................................63 Oscar Chess Ltd v Williams [1957] 1 WLR 370 .......................................................... 292, 308 Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] AC 210 .........................................................................................................41 Peek v Derry (1887) 37 Ch D 541 (CA) ......................................................................... 32, 129 Peek v Gurney (1871) LR 13 Eq 79; (1873) LR 6 HL 377 ........................... 117, 129, 130, 232 Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd [2006] EWCA Civ 386; [2006] 2 Lloyd’s Rep 511 .........................................307 Perrett v Collins [1999] PNLR 77 (CA) .................................................................................77 Phelps v Hillingdon London Borough Council [2001] 2 AC 619 .......................................................................... 57, 113, 119, 237, 238, 323 Phelps v Prothero (1855) 7 De G, M&G 722; 44 ER 280 ....................................................138 Plant Construction plc v Clive Adam Associates (a firm) (Ford Motor Co, Third Party) (1997) 55 Construction LR 41 (CA) .............................120

xxviii

Table of Cases

Precis Plc v William M Mercer Ltd [2005] EWCA Civ 114.................................................323 Prole v Soady (1859) 2 Giff 1; 66 ER 1 .................................................................................142 Pulsford v Richards (1853) 17 Beav 87; 51 ER 965..............................................................141 Ramsden v Dyson (1866) LR 1 HL 129 ........................................................................ 145–46 Re Downer Enterprises Ltd [1974] 1 WLR 1460 (Ch) ........................................ 195, 196, 197 Re Ward (1862) 31 Beav 1; 54 ER 1037 ................................................................................141 Redgrave v Hurd (1881) 20 Ch D 1 (CA) ..............................................................................33 Reese River Silver Mining Co v Smith (1869) LR 4 HL 64 ............................................. 33, 35 Riyad Bank & Others v Ahli United Bank (UK) plc [2006] EWCA Civ 708 ..................................................................................................................323 Robinson v National Bank of Scotland [1916] SC (HL) 154........................ 128, 130, 146–47 Rookes v Barnard [1964] AC 1129 .......................................................................................130 Ross v Caunters [1980] Ch 297 .......................................................................... 40, 41, 75, 332 Routledge v McKay [1954] 1 WLR 615 ................................................................................292 Royscot Trust Ltd v Rogerson [1991] 2 QB 297 (CA) .........................................................201 Rutter v Palmer [1922] 2 KB 87 .............................................................................................63 Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344 ......................................................................................................... 316–17 Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 (CA)............................................................................................151 Savage v Foster (1723) 9 Mod 35; 88 ER 299 ............................................................... 141, 145 Schawel v Reade [1913] 2 IR 64............................................................................................308 Scholefield Goodman and Sons Ltd v Zyngier [1986] AC 562 (PC) ......................................................................................................................194 Scholes v Brook (1891) 63 LT (NS) 837 (Ch) ........................................................................33 Seager v Copydex Ltd [1967] 1 WLR 923 (CA); [1969] 1 WLR 809 (CA) ........................................................................................... 151, 152 Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326 ..........................................................34 Shiells v Blackburne (1789) 1 H Bl 158; 126 ER 94 ...............................................................54 Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] QB 758 (CA).......................................................................................120 Simpson & Co v Thomson (1877) 3 App Cas 279 (HL) ....................................... 30, 198, 282 Skelton v London and North Western Railway Co (1867) LR 2 CP 631.............................................................................................................72 Slim v Croucher (1860) 1 De GF & J 518; 45 ER 462 ...................................... 33, 115, 141–43 Smith Kline & French Laboratories Ltd v Long [1989] 1 WLR 1 (CA) .......................................................................................................201 Smith New Court Securities Ltd v Citibank NA [1997] AC 254 ........................................213 Smith v Chadwick (1882) 20 Ch D 27 (CA) ..........................................................................32 Smith v Eric S Bush [1990] 1 AC 831...................................................... 17, 42, 51, 59–60, 63, 67, 74, 119, 124, 231, 236, 238, 240, 241, 242, 276, 322, 338 Smith v Land and House Property Corp (1885) 28 Ch D 7 (CA) .............................. 129, 310 So v HSBC Bank plc [2009] 1 CLC 503 ...............................................................................237 South Australia Asset Management Corp v York Montague Ltd (sub nom Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd) [1997] AC 191 ............................................................................ 301, 314 Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27 (CA) ............................................................................................... 31, 86, 166

Table of Cases

xxix

Spring v Guardian Assurance plc [1995] 2 AC 296 ............................................ 42, 49, 79–81, 241, 268, 322, 332, 333 Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA Civ 1221; [2010] 2 CLC 705 .....................................................................307 Stephens v Venables (No 2) (1860) 31 Beav 124; 54 ER 1084 ..................................... 141, 142 Stuart v Wilkins (1778) 1 Doug 18, 99 ER 15 ........................................................................32 Sutradhar v Natural Environment Research Council [2006] UKHL 33; [2006] 4 All ER 490 ...............................................................................68 Swinney v Chief Constable of Northumbria Police Force [1997] QB 464 ............................................................................................................... 49, 78 Swinney v Chief Constable of Northumbria Police Force (1999) 11 Admin LR 811 ............................................................................................. 78–79 Tate v Williamson (1866) LR 2 Ch App 55 (Ch) .................................................................149 Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 (Ch) ...................................................................................................146 Taylor v Ashton (1843) 11 M & W 401, 152 ER 860 .............................................................32 Thames Valley Housing Association Ltd v Elegant (Guernsey) Ltd [2011] EWHC 1288....................................................................................................196 The Mihalis Angelos [1971] 1 QB 164 .................................................................................311 Tito v Waddell (No 2) [1977] Ch 106 ..................................................................................123 Tomlin v Luce (1889) 43 Ch D 191 (CA).............................................................................137 Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61 ........................................................................................112 Turner v Davies (1796) 2 Esp 478; 170 ER 425....................................................................195 Unity Joint Stock Mutual Banking Association v King (1858) 5 Beav 72; 53 ER 563 .............................................................................................145 Van Colle v Chief Constable of the Hertfordshire Police [2008] UKHL 50; [2009] 1 AC 225 ....................................................................................49 Vestergaard v Bestnet Europe Ltd [2009] EWHC 1456 ......................................................152 W v Essex County Council [1999] Fam 90 (CA); [2001] 2 AC 592 .............................. 61–62 Walker v Geo H Medlicott & Son [1999] 1 WLR 727 ...........................................................75 Watson v British Boxing Board of Control Ltd [2001] QB 1134 (CA) ......................... 76–77 Wattleworth v Goodwood Road Racing Co Ltd [2004] EWHC 140............................. 76–78 Webster v Liddington [2014] EWCA Civ 560 ......................................................................234 Weir v Bell (1878) 3 Ex D 238 (CA) .......................................................................................33 Weller & Co v Foot & Mouth Disease Research Institute [1966] 1 QB 569 .........................31 Welsh v Chief Constable of Merseyside Police [1993] 1 All ER 692 .....................................76 Western Trust & Savings Ltd v Strutt & Parker [1999] PNLR 154 .....................................241 White v Chief Constable of South Yorkshire Police [1999] 2 AC 455 ................................124 White v Jones [1995] 2 AC 207 ............................................................... 31, 42, 50, 51, 64–67, 75, 236, 281, 322, 323, 332 Wilkinson v Coverdale (1801) 1 Esp 75; 170 ER 284 ............................................................54 Wilkinson v Downton [1896] 2 QB 57 ................................................................................339 William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016 (CA) .................................................................................................211 Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) ...................................................................... 17, 43, 56, 59, 108, 119–120, 124–125, 223, 230, 234–236, 237, 242, 243, 322, 323

xxx

Table of Cases

Willmott v Barber (1880) 15 Ch D 96 .................................................................................145 Winterbottom v Wright (1842) 10 M & W 109; 152 ER 402 ..............................................246 Woodland v Swimming Teachers Association [2013] UKSC 66; [2014] AC 537 .................................................................................. 57, 58, 66, 67 Woods v Martins Bank Ltd [1959] 1 QB 55 .......................................................... 34, 127, 147 X (Minors) v Bedfordshire County Council [1995] 2 AC 633 .............................................81 Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111; [2013] 1 All ER (Comm) 1321 ................................................ 130, 312 Yianni v Edwin Evans & Sons [1982] QB 438 ............................................................... 74, 124 Young v Hamilton [2012] NICh 4........................................................................................214 Yuen Kun Yeu v Attorney-General of Hong Kong [1988] 1 AC 175 (PC) ........................................................................................... 42, 68, 120 United States Anthony v Slaid 52 Mass 290 (1846)....................................................................................282 Bank of New Orleans & Trust Co v Monco Agency (1989) 719 F Supp 1328, 1331–32 (ED La) .................................................................................255 Barrett v Freifeld (2009) 883 NYS 2d 305 (App Div) ..........................................................253 Biakanja v Irving (1958) 320 P2d 16 (Cal) ..........................................................................249 Bily v Arthur Young & Co (1992) 834 P2d 745 (Cal) .................................................. 254, 257 Boykin v Arthur Andersen & Co (1994) 639 So 2d 504 (Ala) ............................................255 Buckley v Gray (1895) 42 P 900 (Cal)..................................................................................246 Colorado Visionary Academy v Medtronic Inc (2005) 397 F3d 867 (10th Cir) .....................................................................................................246 Costa v Neimon (1985) 366 NW2d 896 (Wis Ct App) .......................................................254 Credit Alliance Corp v Arthur Andersen & Co (1985) 483 NE2d 110 (NY) .................................................................................... 252–53, 257, 258 DeBoer v American Appraisal Associates (2007) 502 F Supp 2d 1160 (D Kan 2007) ...................................................................................254 Decatur Ventures LLC v Daniel (2007) 485 F3d 387 (7th Cir) ...........................................254 Densmore v City of Whitehorse (SC Yukon Territory, 10 July 1986) ...................................69 Depue v Flateau 111 NW 1 (Minn SC 1907) .................................................................. 95–97 Douglas Asphalt Co v QORE Inc (2011) 657 F3d 1146 (11th Cir)..................................................................................................................254 East River Steamship Co v Transamerica Delaval Inc 476 US 858 (1986) .............................................................................................. 266, 282 Ellis v Grant Thornton LLP (2008) 530 F3d 280 (4th Cir) .................................................255 Erde v Fenster 141 NY Supp 943 (1913) ..............................................................................315 European American Bank and Trust Co v Strauhs & Kaye (1984) 102 AD2d 776 (NY) .....................................................................................253 First Florida Bank v Max Mitchell & Co (1990) 558 So 2d 9 (Fla) ....................................254 First National Bank of Bluefield v Crawford (1989) 386 SE2d 310 (W Va) ........................................................................................................254 Geare v Sturgis (1926) 14 F2d 256 (DC Cir) .......................................................................246 Giacometti v Aulla LLC (2010) 114 Cal Rptr 3d 724 (Cal App) .........................................254 Glanzer v Shepherd 135 NE 275, 233 NY 236 (1922) .................................. 10, 164, 247, 251, 252, 255, 256, 265, 270, 278, 332, 333

Table of Cases

xxxi

Gray v Trick 220 NW 741 (1928) .........................................................................................315 Hoffman v Red Owl Stores Inc (1965) 133 NW2d 267 (Wisc) ..........................................157 Idaho Bank & Trust Co v First Bancorp (1989) 772 P2d 720 (Idaho) ...............................253 In re Checkers Securities Litigation (1994) 858 F Supp 1168 (MD Fla) ............................255 Indian Towing Co v United States 350 US 61 (1955) ............................................................73 JAO Acquisition Corp v Stavitsky (2007) 863 NE2d 585 (Ct App) ....................................252 Landell v Lybrand (1919) 107 A 783 (Pa) ............................................................................246 Larsen v United Federal Savings & Loan Association of Des Moines (1981) 300 NW2d 281 (Iowa)......................................................................254 M Miller Co v Central Contra Costa Sanitary District (1961)18 Cal Rptr 13 (Ct App) ........................................................................................249 Machata v Seidman & Seidman (1994) 644 So 2d 114 (Fla Dist Ct App) .........................255 MacPherson v Buick Motor Co (1916) 111 NE 1050 (NY) ................................................247 Mandarin Trading Ltd v Wildenstein (2011) 919 NYS 2d 465 (Ct App) ...........................252 Meinhard v Salmon (1928)164 NE 545 (NY)......................................................................256 Milliner v Elmer Fox & Co (1974) 529 P2d 806 (Utah)......................................................255 Nycal Corp v KPMG Peat Marwick LLP (1998) 688 NE2d 1368 (Mass) .....................................................................................................254 Palsgraf v Long Island Railroad Co 162 NE 99 (NY CA 1928) ............................................................................................... 88–89, 251, 256 Parrott v Coopers & Lybrand (2000) 741 NE2d 506 (Ct App) .....................................................................................................................252 Raritan River Steel Co v Cherry Bekaert & Holland (1988) 367 SE2d 609 (NC) ...............................................................................................254 Rozny v Marnul (1969) 250 NE2d 656 (Ill).........................................................................251 Rusch Factors Inc v Levin (1968) 284 F Supp 85 (DRI) .....................................250–251, 257 Savings Bank v Ward 100 US 195 (1879) ..................................................... 246, 255, 257, 258 Shine v Nash Abstract & Investment Co (1928) 108 So 626 (Ala) ................................................................................................................246 State of Louisiana ex rel Guste v M/V Testbank 752 F2d 1019 (5th Cir, 1985)............................................................................................282 Stewart v Jackson & Nash (1992) 976 F2d 86 (2d Cir) .......................................................246 Sykes v RFD Third Ave 1 Associates LLC (2009) 884 NYS 2d 745 (App Div) ....................................................................................... 252, 253 Texas Tunneling Co v City of Chattanooga (1962) 204 F Supp 821 (ED Tenn); (1964) 329 F2d 402 (6th Cir) ...............................249–50, 257 Thayer v Hicks (1990) 793 P2d 784 (Mont) ........................................................................253 Trans World Airlines Inc v Curtiss-Wright Corp 148 NYS 2d 284 (1955) .........................282 Ultramares Corporation v Touche (1931) 255 NY 170, 174 NE 441 (NY) .......................................................... 162, 247–48, 249, 250, 251, 252, 255, 256, 257, 258, 278, 332 United States v Carroll Towing Co (1947) 159 F2d 169 (2nd Cir) .....................................254 Walpert, Smullian & Blumenthal PA v Katz (2000) 762 A2d 582 (Md).............................253 Wendell v van Rensselaer (1816) 1 Johns Ch 344................................................................145 Westpac Banking Corp v Deschamps (1985) 484 NE2d 1351 (NY) ..................................252 Wood v Lucy, Lady Duff-Gordon (1917) 118 NE 214 (NY) ...............................................256 Zelenko v Gimbel Bros (1935) 287 NYS 134 (SCNY), affd (1935) 287 NYS 136 (SCNY, Appellate Division) ...................................................... 70–71

TABLE OF LEGISLATION

Australia Commonwealth Australian Consumer Law (Competition and Consumer Act 2010, schedule 2) ..................4 s 2 ............................................................................................................................... 160, 181 s 2(2) ..................................................................................................................................175 s 3 .......................................................................................................................................172 s 4 .......................................................................................................................................174 s 4(2) ..................................................................................................................................174 s 18 .................................................................... 7, 158–61, 172, 174, 186, 192, 211, 293, 320 s 20 .....................................................................................................................................158 s 21 .....................................................................................................................................158 s 22 .....................................................................................................................................158 s 22A ..................................................................................................................................158 s 29–34 ...............................................................................................................................173 s 82 .....................................................................................................................................156 s 137B ................................................................................................................................187 s 137C ................................................................................................................................187 s 138B ................................................................................................................................175 Pt VIA ................................................................................................................................206 s 236 ........................................................................................................................... 158, 159 s 236(1)(a) ................................................................................................................. 170, 179 s 237 ........................................................................................................... 158, 159, 173, 187 s 237(1)(a) ................................................................................................................. 170, 179 s 238 ...................................................................................................................................159 s 238(1) ..............................................................................................................................170 s 243 ...................................................................................................................................158 Australian Securities and Investments Commission Act 2001 ss 12GP–12GW .................................................................................................................206 Corporations Act 2001 ss 1041L–1041S .................................................................................................................206 Trade Practices Act 1974 ...............................................................................................158, 318 s 4(2) s 51A(2) .............................................................................................................................174 s 52 ................................................................................................................. 7, 159, 190, 293 s 54 .....................................................................................................................................320 s 82 ..................................................................................................................... 170, 179, 317 s 82(1B) .............................................................................................................................187 s 87 ............................................................................................................. 170, 179, 187, 317

xxxiv

Table of Legislation

Australian Capital Territory Civil Law (Wrongs Act) 2002 s 19 .....................................................................................................................................194 s 21(1) ................................................................................................................................194 s 21(2), (3)(b) and (c) .......................................................................................................194 s 45(1) ................................................................................................................................180 s 102 ...................................................................................................................................167 s 107B(2)(a).......................................................................................................................206 s 107E(1)............................................................................................................................206 s 107F(1)(a) ...............................................................................................................206, 209 s 107H ................................................................................................................................209 s 174 ...................................................................................................................................211 New South Wales Civil Liability Act 2002 s 5D(1) ...............................................................................................................................180 s 34(1)(a) ...........................................................................................................................206 s 34(1)(b)...........................................................................................................................206 s 34A(1)(a) ........................................................................................................................206 s 34A(1)(b) ........................................................................................................................206 s 35(1)(a) ................................................................................................................... 206, 209 s 36 .....................................................................................................................................209 Pt 4 ............................................................................................................................. 208, 215 Law Reform (Miscellaneous Provisions) Act 1946 s 5(1)(c) .............................................................................................................................194 s 5(2) ..................................................................................................................................194 Law Reform (Miscellaneous Provisions) Act 1965 s 9(1) ..................................................................................................................................167 Real Property Act 1900 s 42 .....................................................................................................................................215 Northern Territory Law Reform (Miscellaneous Provisions) Act s 12(4) ................................................................................................................................194 s 13 .....................................................................................................................................194 s 16 .....................................................................................................................................167 Proportionate Liability Act s 4(2)(a) .............................................................................................................................206 s 4(2)(b).............................................................................................................................206 s 7(1) and (2).....................................................................................................................206 s 13(1)(a) ................................................................................................................... 206, 209 s 15(1) ................................................................................................................................209 Queensland Civil Liability Act 2003 s 11(1) ................................................................................................................................180

Table of Legislation

xxxv

s 28(1)(a) ...................................................................................................................... 206–7 s 31(1)(a) ................................................................................................................... 206, 209 s 32A ..................................................................................................................................209 s 32D ..................................................................................................................................206 s 32E...................................................................................................................................206 Law Reform Act 1995 s 6(c) ..................................................................................................................................194 s 7 .......................................................................................................................................194 s 10(1) ................................................................................................................................167 Professional Standards Act 2004 ......................................................................................341 South Australia Civil Liability Act 1936 s 34(1) ................................................................................................................................180 Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 s 3(2)(c) .............................................................................................................................206 s 4(1) ......................................................................................................................194, 206–7 s 6(1) ..................................................................................................................................194 s 6(5)–(7) ...........................................................................................................................194 s 7 .......................................................................................................................................167 s 8(2) .......................................................................................................................... 206, 209 s 9 .......................................................................................................................................209 Misrepresentation Act 1972 s 7 .......................................................................................................................................211 Tasmania Civil Liability Act 2002 s 13(1) ................................................................................................................................180 s 43A(1)(a) ........................................................................................................................206 s 43A(1)(b) ........................................................................................................................206 s 43A(5)(a) ........................................................................................................................206 s 43A(5)(b) ........................................................................................................................206 s 43B(1)(a)................................................................................................................. 206, 209 s 43C(1) .............................................................................................................................209 Wrongs Act 1954 s 2 .......................................................................................................................................194 s 3(1)(c) .............................................................................................................................194 s 3(2) ..................................................................................................................................194 s 4 .......................................................................................................................................167 Victoria Wrongs Act 1958 s 23A(1) .............................................................................................................................194 s 23B........................................................................................................................... 202, 208 s 23B(1) .............................................................................................................................194 s 24(2) ......................................................................................................................... 194–95

xxxvi

Table of Legislation

s 24AF(1)(a) ......................................................................................................................206 s 24AF(1)(b) ......................................................................................................................206 s 24AI(1)(a) ............................................................................................................... 206, 209 s 24AJ .................................................................................................................................209 s 24AM...............................................................................................................................206 s 26(1) ........................................................................................................................ 167, 168 s 51(1) ................................................................................................................................180 Pt IVAA ..............................................................................................................................207 Western Australia Civil Liability Act 2002 s 5AI ...................................................................................................................................206 s 5AJA(1)(a) ......................................................................................................................206 s 5AJA(1)(b) ......................................................................................................................206 s 5AK(1)(a)................................................................................................................ 206, 209 s 5AL(1) .............................................................................................................................209 s 5C(1) ...............................................................................................................................180 Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 s 4(1) ..................................................................................................................................167 s 7(1)(c) .............................................................................................................................194 s 7(2) ..................................................................................................................................195 Canada Canada Shipping Act, RSC 1952, s 591 ..................................................................................73 Ontario Securities Act 1990 ..................................................................................................341 New Zealand Contractual Remedies Act 1979 ............................................................................. 23, 293, 317 s 6 ..................................................................................................... 7, 202, 211, 312–17, 318 s 6(1) ..................................................................................................................................312 Fair Trading Act 1986...................................................................................................... 23, 318 s 9 ........................................................................................................... 7, 192, 211, 293, 317 s 43 .....................................................................................................................................317 s 43(3)(f) ...........................................................................................................................317 Law Reform Act 1936 s 17 .....................................................................................................................................203 s 17(1)(c) ...........................................................................................................................194 s 17(2) ................................................................................................................................195 Shipping and Seamen Act 1952 s 206 ...................................................................................................................................107 United Kingdom Chancery Amendment Act 1858 (‘Lord Cairns’ Act’) (21 & 22 Vict c 27) s 2 .......................................................................................................................136, 151–152

Table of Legislation

xxxvii

Civil Liability (Contribution) Act 1978 ...................................................................202–3, 214 s 1(1) ..................................................................................................................................194 s 2(1) ..................................................................................................................................194 s 6(1) ..................................................................................................................................194 Companies Act 2006 ss 532–538 ..........................................................................................341 Consumer Protection Act 1987 ..............................................................................................23 Contracts (Rights of Third Parties Act) 1999 ................................................................ 14, 332 s 1(1)(b).............................................................................................................................118 Directors Liability Act (1890) 53 & 54 Vict c 64 s 3 .........................................................................................................................................33 Education Act 1996 ss 13–16 ...............................................................................................................................66 ss 351–53 .............................................................................................................................66 s 411 .....................................................................................................................................66 Fraud Act 2006 s 1 .......................................................................................................................................130 s 2 .......................................................................................................................................129 Misrepresentation Act 1967 ......................................................................................................7 s 1–2 ...................................................................................................................................112 s 2 .......................................................................................................................................211 s 2(1) ..................................................................................................................................311 Powers of the Criminal Courts (Sentencing) Act 2000 s 130 ...................................................................................................................................130 The Supply of Goods and Services Act 1982 s 13 .....................................................................................................................................114 s 16 .....................................................................................................................................114 Unfair Contract Terms Act 1977 .............................................................................. 60, 63, 114 Secondary Legislation Education (National Curriculum) (Attainment Targets and Programmes of Study in Physical Education) (England) Order 1998, SI 1998/1987............................66 Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/3159 ............................114 United States of America Kansas Statutes Annotated § 1-402 (2012) ..........................................................................253 Louisiana Revised Statutes Annotated § 37:91 (2012) ........................................................253 New Jersey Statutes Annotated § 2A:53A-25 (2013) ...........................................................253 Wyoming Statutes Annotated § 33-3-201 (2006)................................................................253

Part 1

Issues

1 Hedley Byrne v Heller: Issues at the Beginning of the Twenty-First Century KIT BARKER

I. Introduction Aside from Donoghue v Stevenson,1 there are few twentieth-century tort cases as well known, or as often cited in commonwealth jurisdictions as Hedley Byrne & Co Ltd v Heller & Partners Ltd.2 Although the case’s importance is clear, determining exactly what it stood for at the time—or indeed what it stands for now—is rather more difficult and remains a matter of persistent controversy. Variously, it has been construed as a case about liability for careless words,3 about the scope of duties in respect of pure economic loss, or about the proper boundaries between our modern categories of contract, tort and trust (fiduciary duty). Some suggest that it resurrected an ancient form of action that was entirely familiar to lawyers of a former age,4 while others see it as a landmark of modernism in English law. It has been understood as providing a commentary (laudatory or damning, depending on your point of view) about the way judges set about making new law in the common law system;5 about the (im)proper role of private law in regulating information markets6 or protecting persons in relationships of dependency;7 about the need for proper ‘rights thinking’ in modern understandings of the tort

1

Donoghue v Stevenson [1932] AC 562 (HL). Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) (‘Hedley Byrne’). This is how the case itself reads, little mention being made of the fact that the losses were economic. 4 P Mitchell, ‘Hedley Byrne & Co Ltd v Heller & Partners Ltd (1963)’ in C Mitchell and P Mitchell (eds), Landmark Cases in Tort (Oxford, Hart Publishing, 2010) 171. It is certainly true that this is how it would have been conceived historically. Whether it makes sense to continue to think of it in these terms is much more debateable. 5 For recent damnation, see R Buxton, ‘How the Common Law Gets Made: Hedley Byrne & Other Cautionary Tales’ (2009) 125 LQR 60. See also Campbell (Chapter 5). 6 Campbell (Chapter 5). 7 See, eg, SR Perry, ‘Protected Interests and Undertakings in the Law of Negligence’ (1992) 42 University of Toronto Law Journal 247, 270–81; N McBride and A Hughes, ‘Hedley Byrne in the House of Lords—An Interpretation’ (1995) 15 Legal Studies 376. 2 3

4

Kit Barker

of negligence;8 about the fragile role of fictions in the law;9 and about the relationship between equitable, common law and statutory remedies for misleading and deceptive practices. In fact, in the 50 years or so since it was decided, the case has been said to be significant in pretty much every way one can conceive of as a commentator—historically, conceptually, taxonomically, constitutionally, socially, jurisprudentially and economically. This is no small thing, when one considers that the claim which formed the focus of the House of Lords’ attention on that fateful day failed straightforwardly and was disposed of on a narrow point. Rarely has so much that was stricto sensu immaterial to the outcome of a case been the subject of so much critical attention, or had such lasting reverberations. Since 1963, much has happened to cause us to reflect further on the case. Economic loss liabilities in tort generally—and in cases of misstatement in particular—have become more extensive, more uncertain and more complex. The extension of liability we have seen is not just significant for the victims of misleading informational practices, who obviously welcome it, but also for governmental and professional advisory sectors, which have been exposed to a range of new and potentially burdensome liabilities. So significant has Hedley Byrne and its legacy proven for these actors that public bodies have curbed some of their more risky advisory practices;10 and governments in many jurisdictions have intervened to permit the capping or redistribution of advisors’ liabilities in order to reduce their legal exposure.11 The perception among the governments implementing these changes has been that tort liabilities have been allowed to go too far and that they are potentially deleterious to the broader social welfare by undermining the viability of insurance and information markets, unfairly burdening defendants with disproportionate or crushing liabilities, or reducing plaintiffs’ incentives to protect their own financial interests, thereby encouraging hedonistic ‘compensation cultures’ in which plaintiffs look to others to compensate their losses ex post facto, rather than to themselves ex ante for prudential precaution in making their investment decisions. Whether any of these perceptions about the supposed empirical effects of the new tort liabilities is justified is what Sherlock Holmes might have referred to as a ‘three pipe problem’.12 It seems equally unlikely as likely.13 Nonetheless, the idea that we live in an age when tort has gone too far is not unique to governments that have had professional advisor organisations or powerful insurance lobbies 8 See, eg, R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007) 33–6; A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing, 2007) ch 8. 9 See, eg, K Barker, ‘Unreliable Assumptions in the Modern Law of Negligence’ (1993) 109 LQR 461. 10 One example in Australia is the cessation of the practice, in which some Councils used to engage, of issuing certificates to purchasers of buildings of their compliance with building regulations. For a case illustrating the risk, see Woollahra Municipal Council v Sved (1996) 40 NSWLR 101 (NSWCA). 11 For a critical, comparative overview, see K Barker and J Steele, ‘Drifting Towards Proportionate Liability: Ethics and Pragmatics’ (2015) 74 CLJ 1. 12 A Conan Doyle, The Adventures of Sherlock Holmes (London, George Newnes, 1892) 188 (‘The Red-Headed League’). 13 On the evidential gap, see Barker and Steele (n 11) 23–28.

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banging on their doors. It is also shared by some judges and influential academic commentators.14 In Australia, for example, it is now reflected in the way the High Court openly considers whether or not a plaintiff could reasonably have protected himself against a foreseeable financial loss, before determining that a defendant owed him a duty of care.15 This more pro-defendant attitudinal shift is key to understanding the way in which negligent misstatement liabilities and economic duties are being modelled by courts in the modern day. Many of the progressive social welfare assumptions that prevailed in the age of Hedley Byrne (what the late Tony Weir once referred to as the ‘let it all hang out’ atmosphere of the 1960s)16 are being questioned in more exigent, conservative times. The recent series of cases in Australian law referring to the importance of selfprotection in economic matters17 prompts the interesting question of how the duty question posed in Hedley Byrne itself would now be determined by the High Court in the modern day, assuming there to be no operative disclaimer by an advisor. Are orthodox assumptions that a duty would exist on such facts still safe (if indeed they ever were)?18 Although it is certain still to be accepted by courts that no contract is needed for there to be a negligence liability for pure economic loss, it is now potentially open to a defendant to argue that the availability of contract to a plaintiff as a risk-allocation mechanism is a good reason, on some facts, to deny that any economic duty of care is owed. The difference between these two positions (no contract duty does not necessarily mean no tort duty, but the availability of contractual protection for a plaintiff could preclude it) may be too subtle to be stable. Few have as yet dared (or perhaps been required?)19 to argue the point, but there is nothing in principle to prevent the High Court in 2015 deciding that a sophisticated commercial party seeking and obtaining a financial reference about a client from the client’s bank on a gratuitous basis is owed no duty of care, on the basis that it has the capacity to make alternative investigations about the client’s solvency, to seek security from the client in the ordinary way, or to contract for the reference on a commercial basis.20 The more restrictive, recent approach 14 See, eg, J Stapleton, ‘Duty of Care—Peripheral Parties and Alternative Opportunities for Deterrence’ (1995) 111 LQR 301; ‘Pure Economic Loss Doctrine in Australia and Commercial Arrangements’ (Paper delivered at the Bar Association of Queensland, Brisbane, 24 July 2014). 15 See, eg, Perre v Apand Pty Ltd [1999] HCA 36; Woolcock Street Investments Pty Ltd v CDG Pty Ltd [2004] HCA 16; Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36. 16 T Weir, ‘All or Nothing’ (2004) 78 Tulane Law Review 511, 549. 17 See n 15. See also Johnson Tiles Pty Ltd v Esso Australia Pty Ltd [2003] VSC 27; Makawe Pty Ltd v Randwick City Council [2009] NSWCA 412. 18 For the view that they were not, see Buxton (n 5), Mitchell (n 4), Swain (Chapter 3) and Robertson and Wang (Chapter 3). 19 Most such claims in Australia will now be argued under the Australian Consumer Law, not in negligence. See Chapter 7. 20 Once one accepts that a defendant can be expected to protect himself by negotiating contractual protection with the defendant or a third party, it also becomes difficult to ignore the question whether or not he could have obtained insurance, assuming evidence regarding the insurance market to be available and non-contested. See Johnson Tiles (n 17). Questioning traditional paradigms regarding the relationship between liability and insurance see R Merkin and J Steele, Insurance and the Law of Obligations (Oxford, Oxford University Press, 2013).

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towards the recovery of pure economic losses is not unique to Australia, but can be detected in the slowing or reversal of the expansionist trends of the 1970s and 1980s elsewhere across the common law world. There have therefore been significant ideological shifts within and around negligence law as a whole in the last few decades, driven by the different social conditions of the modern day. The new ideology is conservative with a small ‘c’ and essential to understanding the potential reach and role of advisor liability in future years. The new conservatism sits well with the agenda of modern ‘rights’ theorists such as Professor Robert Stevens,21 who has suggested at one conference I have attended (perhaps only half tongue-in-cheek) that the law of negligence needs to take a ‘giant step forwards to the nineteenth century’. Humour aside, he is making a serious point about both the bounds of liability, which he regards as overextended, and the abstruse reasoning upon which it is too often based. As we shall see, some contributors to this volume quietly rue the attitudinal change that has taken place and the shift away from welfarism back to the mechanisms of market voluntarism. Others clearly regard it as welcome and argue that it should be more radical still, such that Hedley Byrne and negligent misstatement liabilities should be excised from the law22 (or the law of tort)23 altogether, at least as regards recovery for pure economic loss. The fragility and uncertainty of the ideological and social changes occurring in common law jurisdictions make general predictions about likely direction difficult. They also explain the doctrinal tensions that are evident in the case law of all the jurisdictions we touch on in this work; and indeed the varying positions that are taken by jurisdictions more generally regarding the scope of advisors’ economic duties in cases involving remoter relationships.24 On the one hand, the realisation that the recent global financial crisis has been driven at least in part by under-regulation of private financial orderings suggests that advisors such as accountants, auditors and lawyers ought to be playing a more attentive and active role in policing market failures. On this approach, stringent tort rules are needed to incentivise efficient practices of detection and disclosure and the restriction of liabilities to contractual or ‘near-contractual’ relationships is counter-intuitive. On the other hand, the true social cost of these cataclysmic failures is clearly well beyond the capacity of individual actors within the information economy to bear, and imposing crushing liabilities upon them in a way that disregards the practicalities could itself have unforeseen and undesirable social effects. Another complicating feature for those seeking to understand the contours of misstatement liability as a whole in the modern day is the fact that the tort 21

See n 8. Campbell (Chapter 5). 23 Beever (Chapter 4). 24 For an excellent comparative view of this issue, see V Palmer and M Bussani, Pure Economic Loss—New Horizons in Comparative Law (London, Routledge-Cavendish, 2009) case-study six (auditor’s liability). On the US position, see also J Feinman, ‘The Economic Loss Rule and Private Ordering’ (2006) 48 Arizona Law Review 813. 22

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liabilities of advisors under negligence doctrine now intersect in several common law jurisdictions with (relatively) new ‘strict’ liability ‘consumer protection’ provisions, which provide generous remedies to the victims of misleading and deceptive trade practices;25 with statutory remedies for pre-contractual misrepresentation;26 and with equitable remedies and doctrines in cases involving estoppel, breach of fiduciary duty and other types of equitable fraud.27 Even ignoring the laws of defamation, malicious falsehood and passing off (all of which involve remedies for mistruths of one sort or another), misstatements now potentially give rise to liabilities under multiple analytical heads and the various categories of liability can give rise to quite different remedies, governed by distinct principles. An increasingly urgent question is how we should now understand and define the relationship between the various regimes. Should principles of equitable and common law compensation be subjected to the same basic analytical framework?28 Should the several principles and sources of misstatement liability created by judges be formally restated to bring greater clarity and coherence to the law?29 Since the mid-1970s, statutory regimes have supplanted tort remedies for misstatement in Australia and New Zealand in a significant number of cases and this has, for all its good intentions, introduced a brand new set of problems, as we shall see. In the United States, the American Law Institute is now engaged in its own review of advisor liabilities as part of the Restatement (Third) of Torts: Liability for Economic Harm.30 A final hazard faced by the law of misstatements in the twenty-first century is the high degree of complexity and uncertainty that currently attends its norms. The uncertainty stems in part from the overlap between contractual, tortious, equitable and statutory principles—from what one might call ‘source proliferation’ or ‘source co-ordination’ problems—but it also flows from more basic conceptual and doctrinal confusions within the discrete fields of law themselves. Perhaps the most obvious of these relates to the role of the concepts that are commonly regarded as most central to the judgments in Hedley Byrne—the idea that duties of economic protection in the tort of negligence are (or should be) based 25 See the Australian Consumer Law (Competition and Consumer Act 2010, schedule 2) (Cth) s 18 (formerly the Trade Practices Act 1974 (Cth) s 52) and associated State and Territory legislation; Fair Trading Act 1986 (NZ) s 9; Bant and Paterson (Chapter 7). 26 Misrepresentation Act 1967 (UK); Contractual Remedies Act 1979 (NZ) s 6; McLauchlan (Chapter 12). See further J Cartwright, Misrepresentation, Mistake and Non-Disclosure, 3rd edn (London, Sweet & Maxwell, 2012). 27 See Finn (Chapter 6); IE Davidson, ‘The Equitable Remedy of Compensation’ (1981–1982) 13 Melbourne University Law Review 349. 28 A Burrows, ‘We Do This at Common Law but That in Equity’ (2002) 22 OJLS 1. 29 Restatements are best known in the US, but similar projects have started to appear in complex fields of private law even in singular jurisdictions. See A Burrows, A Restatement of the English Law of Unjust Enrichment (Oxford, Oxford University Press, 2012) reviewed by K Barker, ‘Centripetal Force: The Law of Unjust Enrichment Restated in England and Wales’ (2014) 34 OJLS 631. The complexities and confusions surrounding the common law of tort in many jurisdictions might well make such projects valuable even where the jurisdiction is smaller and less disparate than in the US. 30 First Tentative Draft (St Paul, Minn., ALI, 2012) (‘Third Restatement’).

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on ‘assumptions of responsibility’ and/or ‘reliance’.31 In the jurisdictions in which these concepts have taken off, they have proven unruly; and their role and utility both within and beyond misstatement law is the subject of several important contributions to this work. The costs of the confusion are high, not simply in terms of wasted litigation, but also in preventing defendant advisors and their insurers arranging appropriate levels of cover and setting their prices in such a way as to make prospective liabilities sustainable. The irony is that while courts often insist that indeterminate (uncertain) amounts of liability are a normative problem for defendants in misstatement cases, indeterminate liability rules are currently woefully prevalent in many jurisdictions. The upshot is that the debates that Hedley Byrne originally inspired about the respective roles of tort, contract, equity and statute in protecting economic interests; and about the proper balance between contractarian, free-market ideology on the one hand, and interventionist regulatory welfarism, on the other, have grown in intensity, significance and difficulty over the last 50 years. We have witnessed how these debates panned out in favour of plaintiffs in the relatively good times of the 1960s and 1970s and are now confronted with the awkward question of how they should be answered (and whether indeed they should in principle be answered any differently) when markets fail and money is short. It is naïve to think that judges are completely unaffected in the way they develop the law by the broader social conditions within which it operates, even accepting that there are limits to their authority and competence to set social policy in the way that government does.

II. Aims and Overview There is therefore much to think about. The purpose of this work is to look anew at Hedley Byrne from a variety of different perspectives, drawing on the more recent experience of five important common law jurisdictions—the United Kingdom, the United States, Canada, New Zealand and Australia. The chapters which follow review the laws of misstatement and pure economic loss from a number of complementary points of view—comparative, historical, conceptual, theoretical and economic. The aim is not simply to engage in retrospection, but to provide a stable platform for debate upon which a clearer and better law of misstatement(s) might be built in the twenty-first century—one that is fair and comprehensible to

31 On which see generally, J Beale, ‘Gratuitous Undertakings’ (1891) 5 Harvard Law Review 222; A Weir and R Dias, ‘Liability for Syntax’ [1963] CLJ 216, 217; P Cane, ‘The Metes and Bounds of Hedley Byrne’ (1981) 55 Australian Law Journal 862, 869; Perry (n 7); Barker (n 9); B Coote ‘Assumption of Responsibility and Pure Economic Loss in New Zealand’ [2005] New Zealand Law Review 1; K Barker, ‘Wielding Occam’s Razor—Pruning Strategies for Economic Loss’ (2006) 26 OJLS 289; R Brown, ‘Assumption of Responsibility and Loss of Bargain in Tort Law’ (2006) 29 Dalhousie Law Journal 345.

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all involved. This means confronting some important contemporary issues and challenges. Part 2 opens the debate with a discussion of historical, conceptual and theoretical issues. The focus here is on the background to Hedley Byrne and the way it has been received in Australia (Chapter 2); the nature, meaning(s) and use(s) of the concept of ‘assumption of responsibility’, both in negligent misstatement cases and more broadly in negligence law (Chapter 3); the proper way of understanding the foundational basis of negligent misstatement liability (Chapter 4); and its rationality (or otherwise) from the liberal-economic point of view (Chapter 5). Part 3 then examines the intersections between tort liability and the liability of advisors and others for equitable fraud (Chapter 6) and under the strict liability statutory regime for misleading or deceptive trade practices that now dominates the field in Australia (Chapter 7). These chapters, along with some of the later contributions in the work, set tort liabilities and concepts in their context and address the challenge of how properly to configure and co-ordinate liability rules that have different sources and historical traditions. The same Part also contains an important contribution on the way in which the liabilities of advisors and other co-defendants responsible for causing the same financial loss are now distributed inter se (Chapter 8). These rules are extraordinarily complex and have, since Hedley Byrne, been altered in some jurisdictions to reduce the exposure of ‘deep pocket’ or ‘peripheral’ defendants (including advisors) to the risk of their co-defendants’ insolvency. The final Part of the book (‘Comparative Perspectives’) contains specific contributions addressing aspects of the law in each of the main common law jurisdictions. As well as having a distinct, jurisdictional focus, these contributions build upon discussions in previous chapters and contribute further to the development of their themes. Chapter 9 hence examines the modern English law, but revisits in the process the analytical and theoretical debates that raged in Part 2. Chapter 10 tracks the American law of negligent misstatement from its early days to the most recent Third Restatement draft, highlighting ideological and political shifts (from classical private ordering to public ordering, and back again) along the way. Chapter 11 examines the modern Canadian law and advocates a return to Hedley Byrne’s earlier logic and concepts. Chapter 12 considers both the way in which the negligence liability posited in Hedley Byrne came to be applied to pre-contractual misrepresentations (the author clearly thinks this was a mistake) and comments on the New Zealand experience with two statutory regimes—one governing precontractual misrepresentations, which is unique in the common law world, the other governing misleading or deceptive trade practices, which is similar to that existing in Australia. The lessons here are salutary, but not very encouraging. Finally, Chapter 13 highlights some of the consequences for negligence law of its neglect in Australia in the shadow cast by the powerful statutory protections now prevailing in that jurisdiction. It focuses on the confusions currently attending duty of care rules in ‘three-party’ misstatement cases and tries to bring greater order and rationality to them.

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III. History, Concepts and Theory A. History Hedley Byrne was not the first negligence case to contemplate the award of monetary compensation for pure economic loss caused by false information outside of contract. As Professor Feinman points out, America got there much earlier in Glanzer v Sheppard.32 Nor was it just the common law that historically awarded monetary compensation. Professors Swain and Finn hence both refer to a brief period in the nineteenth century when equity developed its own jurisdiction to ‘make good’ misrepresentations of both fact and intention, even without a defendant being proven dishonest. This jurisdiction performed much the same function as the modern law of contract, stripped of its formalities, or the modern law of tort. On this there appears to be much agreement. Less clear is the answer to the specific question whether the action in Hedley Byrne itself would have succeeded had no disclaimer of responsibility been made. Would a duty have been owed, or breached? As regards the first issue, it has commonly been assumed that a duty would indeed have arisen, but both Professor Swain (Chapter 2) and Professor Robertson and Julia Wang (in Chapter 3) hint that this may be a lie that has attained the dignity of age.33 Although the respective contributors read Lord Pearce slightly differently, both resolve that there was no clear majority in favour of that conclusion, and that both Lord Morris and Lord Hodson seemed set against it. As regards breach, things are perhaps more intriguing still. The issue was never considered by the House of Lords, but the first instance judgment of McNair J, which we append to this work, provides some fascinating insights. Heller and Partners in fact gave two references, not one, as is sometimes assumed. On the 18th August 1958 it gave an oral reference to the plaintiff ’s bank (National Provincial Bank (‘NP’)) regarding the capacity of one of its clients (Easipower) to meet a contract worth £8–9,000. This did not include any disclaimer of responsibility in its terms, although it appears that in the telephone conversation in which the reference was sought, NP made clear that this was the basis on which it was understood as being given. The reference indicated that Easipower was ‘respectably constituted’ and ‘good for its normal business engagements’. The contents of the oral reference were relayed by NP to the plaintiff in a letter dated the 21st August. This letter indicated that it was for the plaintiff ’s ‘private use’ and contained a disclaimer on the part of NP and NP’s manager of any responsibility for its accuracy. 32 Glanzer v Sheppard (1922) 135 NE 275 (NY). In Chapter 2, Swain points to the earlier English case of Cann v Willson (1888) 39 Ch D 39, but concludes that it was not ‘strong authority’. See more generally, M Lobban, ‘Nineteenth Century Frauds in Company Law: Derry v Peek in Context’ (1996) 112 LQR 287, ‘Contractual Fraud in Law and Equity, c1750–c1850’ (1997) 17 OJLS 44. 33 A turn of phrase attributable to the American journalist HL Mencken.

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On the 4th November Heller supplied a second, written reference to NP regarding Easipower’s capacity to pay for a contract worth the much larger sum of £100,000. This reference is the better known. It was short, stated to be for the ‘private use’ of NP and was apparently much more guarded in its terms. Although the same phrase (‘respectably constituted, good for its ordinary business engagements’) was repeated, the text added ‘the figures are larger than we are accustomed to see’. That letter was relayed to the plaintiffs by NP on the 14th November. Throughout, Heller knew that Easipower was the subsidiary of another company, Pena Industries Ltd, which was in liquidation. This fact was indeed the subject of express comment by Heller in the first reference. Heller knew that efforts were being made by Easipower’s managing director to acquire Easipower from the liquidator, but it also knew that these efforts had been unsuccessful. By the time the second, written reference was supplied, it also knew that the director had ‘wholly falsified’ his financial projections so as to give a misleading impression of Easipower’s prospects as an independent trading entity. McNair J had no hesitation in finding that insufficient care had been taken in the giving of either the first or second reference, but Professor Buxton has recently suggested that his conclusions were wrong because the references both contained ‘coded warnings’ or ‘red flags’ regarding Easipower’s viability, which would have been readily apparent to NP.34 These observations are astute, but I respectfully question their conclusive force. Precisely these arguments were put by the defendant, but rejected by McNair J, before whom all the facts lay. As regards the first reference, his Honour admitted that the evidence regarding the way bankers might understand it was ‘not very precise’, but decided that whatever special, subtle meanings might be attributed to its words, it was too favourable overall and failed sufficiently to identify the known risks. As regards the second reference, he accepted that the terms used were much more cautious, but thought that it was also still too positive in tone, given Heller’s knowledge by that time that financial figures relating to Easipower were false and that the managing director had failed in his bid to rescue the company from the liquidator’s grasp. Part of the difficulty in resolving the issue of precisely what Heller should have said in its references stems from an uncertainty about who it thought might use them. The plaintiff ’s identity was never disclosed to Heller by NP. The way in which NP itself denied responsibility when reporting the contents of the first reference might also suggest that Heller provided the required information on that occasion merely to facilitate a reference that NP was providing to Hedley. On the other hand, it seems unlikely that Heller really thought the information was required for NP’s own purposes, rather than those of an anonymous client. Perhaps the clinching point (and this was the one that seems to have appealed to McNair J) is that, even if Heller might reasonably have anticipated that the references would 34 Buxton (n 5) 62 (describing Mc Nair J’s conclusion as ‘a striking finding’). Apparently Heller was keen to contest this issue on appeal, but never got the chance. For another doubter on this issue, see Campbell (Chapter 5, text at n 28 and n 84).

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be read (or explained to a client) by a banking industry expert, Heller knew, by the 4th November, of significant additional risks: it was aware that the financial projections were false and that Easipower was fast heading for the rocks, with no sign of rescue. Even if, therefore, Heller was ‘entitled to use the private language of bankers’, as Buxton says,35 it is unclear that it went far enough to downplay the potentially falsely favourable impression that its words might convey on the occasion of the second reference. It is hard to take issue with McNair J’s conclusion on this point without having fuller access to the primary evidence. The puzzle as to whether or not the House of Lords would have allowed the claim in Hedley Byrne in the absence of a disclaimer is probably now beyond our wit to solve. This is not just a product of our not being able to re-marshal all the evidence. Historical inquiries do not deal well with hypothetical questions about human decision making as opposed to empirical matters of fact because the problems posed by such questions are not simply epistemological, but inherently indeterministic.36

B. Concepts, Taxonomy and Foundational Theory Three separate, but closely interrelated theoretical debates flowing from Hedley Byrne are canvassed in Part 2, although they are also addressed by later contributions in Part 4 ‘Comparative Perspectives’. The first relates to the foundational normative basis of the right foreshadowed in the case and subsequently made good in other misstatement cases involving pure economic loss. The second is a taxonomic debate about whether such cases ‘belong’ to the category of tort, contract or trust (consensual relationships of dependency or inequality). The third concerns the appropriate conceptual apparatus to apply when determining duty of care questions in cases of the misstatement/economic loss type. These issues have been very extensively debated in the last 50 years and it is appropriate now to try to bring matters to a head.

(i) Misstatement Liabilities as Consensual Private Ordering Those who believe that the primary rights underpinning plaintiffs’ actions in misstatement cases are based on the defendant’s own will or consent (whether subjectively, or objectively conceived) tend to say that they belong in contract and argue that duties of care should only arise where there is a ‘voluntary assumption of responsibility’ or ‘undertaking’ to the plaintiff on the defendant’s part. They emphasise the closeness of the relations in cases such as Hedley Byrne to formal

35

ibid. The language is drawn from H Reece, ‘Losses of Chances in the Law’ (1996) 59 MLR 188. An event is indeterministic if it ‘could not have been predicted at any point in the past, it cannot be predicted in the present even given unlimited time, resources and evidence and we cannot imagine how it would become predictable in the future’ (at 194). 36

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contracts, and the ‘near-privity’ of the parties. In consequence, they set such cases apart from others in negligence law and maintain that it is inappropriate to assimilate them into its broader analytical framework as mere examples of party ‘proximity’, or ‘neighbourhood’ in the Atkinian sense. For such commentators, if any duty arises at all, it is not because the law (the state, acting through its courts) has chosen to grant plaintiffs any qualified primary ‘right’ to the protection of their economic interests, but rather because defendants themselves have exercised their will to create or bestow such rights on plaintiffs. Similarly, when judges talk about the importance of ascertaining the ‘purpose’ or ‘end aim’ of the information a defendant has provided, or whether or not the defendant ‘invited’ or ‘intended’ the plaintiff to rely on it in determining duty questions in misstatement cases, this reflects the fact that the source of the plaintiff ’s right lies within the defendant’s will. This is a classical, contractarian, formalist model of obligation, which focuses on the value of autonomous private ordering. It excludes from consideration pragmatic ‘policy concerns’ about the potential effects of liability on defendants or markets, sweeping aside all talk of such matters as irrelevant to what is straightforwardly an ethical question to be decided between the parties themselves on the basis of their mutual wills as selfdetermining agents. This type of vision is strongly endorsed by Professor Beever in Chapter 4 and has found favour with a number of other distinguished commentators,37 many (but not all) of whom have been inspired by Professor Ernest Weinrib.38 All of them rely extensively on the speech of Lord Devlin, whose language in Hedley Byrne is undoubtedly closest to the contractual paradigm.39 Beever concludes that Hedley Byrne belongs within contract, not tort, and argues that the only reason it is not so placed is because people have overly rigid and inaccurate views about the nature of contract, which is not (or should not always be) constrained by the doctrine of consideration. He is attracted to the broader conception of contract law that exists in some European systems.40 The same conclusion has also recently been expressed in the United States by Mark Gergen,41 who details at some length the way in which understandings of contract law have shifted over time and who argues that the more realist environment that prevails in the United States in modern times could allow some of the formalist trappings of contract to be dropped. 37 See, eg, Stevens (n 8). Compare P Benson, ‘The Basis for Excluding Liability for Economic Loss in Tort’ in D Owen (ed), Philosophical Foundations of Tort Law (Oxford, Oxford University Press, 1995) 427, 450–54. The consensual construction of ‘common calling’ cases also appealed to Blackstone: P Winfield, ‘The History of Negligence in the Law of Torts’ (1926) 42 LQR 184, 189. The strength of Locke’s influential social contract theory at the time that Blackstone was writing may in part explain this approach. 38 E Weinrib, The Idea of Private Law (Cambridge, Mass., Harvard University Press, 1995). 39 Mitchell (n 4) 196 suggests that Devlin may himself have been influenced by Professor Winfield, whose lectures he may have attended at Cambridge. 40 On the consequences of adopting a narrow conception of contract, see B Markesinis, ‘An Expanding Tort Law—The Price of a Rigid Contract Law’ (1987) 103 LQR 354. 41 MP Gergen, ‘Negligent Misrepresentation as Contract’ (2013) 101 California Law Review 953. See also A Jaffey, ‘Contract in Tort’s Clothing’ (1985) 5 Legal Studies 77.

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This approach chimes with a weakening of the classical paradigm of contract law elsewhere in the common law world through estoppel doctrines42 and statutory extensions to privity rules.43 Qualified support for Beever’s approach is expressed by Professor Feldthusen in Chapter 1144 when criticising the Supreme Court of Canada’s pragmatic approach to the duty question in Hercules Management v Ernst & Young.45 Feldthusen sees Beever’s analysis as an antidote both to the idea that there are any general rights to economic welfare in tort and to the more open-textured type of policy debacle that typically attends the pragmatist approach. For these reasons, Feldthusen is also an enthusiast for the idea that duties of care should be limited in misstatement cases by reference to the existence of an assumption of responsibility, which he defines as an objective intention on the defendant’s part to induce a plaintiff to rely on him. One serious problem with the reasoning in Hercules, he argues, is that it wrongly implies that a duty of care is justified by a plaintiff ’s unilateral decision to rely on information that another person has supplied. Some aspects of Beever’s analysis also appeal to Professor Campbell in Chapter 5. This is initially very surprising, since Beever’s premises are formalist and Kantian, whereas Campbell is an unashamed, pragmatic liberal economist. The fact that they nonetheless evidently agree on some things serves to demonstrate the point that liberal economics and Kantian deontology both have private ordering, decentralised decision making and individual choice at the heart of their worlds, even if they are otherwise awkward bedfellows. Both are united in detesting regulatory judicial intervention in financial markets. If I interpret him correctly, Campbell goes even further than Beever. Rather than simply suggesting that Hedley Byrne is justified, but better classified within contract, he says that the idea that Heller might have been under any duty of care is straightforwardly wrong. The notion that a person can have a right to the protection of his economic interests without having paid for such a right is, from his point of view, ‘economically irrational and, what is the same thing [question—is it?], morally unjust’. This is because it indemnifies him in respect of his choice to rely on something someone else has said, without him having had to pay for the indemnification. He is a freerider on another’s intellectual capital. The paradigm of payment as a source of duty and right in economic affairs that underlies Campbell’s approach is reflected in the draft Third Restatement, where it is stipulated that for a duty of care to be imposed on a defendant in a misstatement case, he must be acting either in the course of business or trade, or in a transaction in which he has a ‘pecuniary interest’.46 The rationale of such liabilities is said to 42 This weakening is strongest in those jurisdictions that allow promissory estoppel to work as a sword, such as Australia. See Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 (HCA). 43 eg Contracts (Rights of Third Parties) Act 1999 (UK). 44 The qualifications are significant. Unlike Beever, Feldthusen places misstatement liabilities within tort; and accepts that they are not voluntary. His position is closest to Perry’s (below), although there is again no exact match. 45 Hercules Management v Ernst & Young [1997] 2 SCR 165 (SCC) (‘Hercules’). 46 Third Restatement (n 30) §5(1).

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be that they serve as a ‘substitute for a contract between two parties who cannot conveniently write one’.47 Like Campbell’s, this approach also appears to view the economic world as primarily a sphere of self-interested private ordering. It does not, however, tell the whole American story. United States courts have, Professor Feinman points out in Chapter 10, taken a variety of different positions on misstatement duties since Glanzer, some of which are clearly more welfarist than others. In the wake of the Restatement (Second) of Torts of 1965, some of these cases came close to imposing liability according to a foreseeability standard, provided no dangers of indeterminate liability raised their ugly head. But in more recent years, Feinman signals, a significant body of courts (following the New York commercial jurisdiction) have reverted to more classical paradigms that impose near-privity-like restrictions on the sorts of relationships giving rise to duties of care. These restrictions are reflected in a focus on the need for close ‘linking’ or direct dealings between the parties, and on the defendant’s intentions, understandings and motivations. In Chapter 12, Professor McLauchlan also suggests an implicit preference for the conception of misstatement liability as private ordering, at least in the context of pre-contractual negotiations. This is an especially sensitive context commercially and one in which norms of self-protection are clearly at their strongest in the classical paradigm. In a candid reappraisal, he suggests that Hedley Byrne never intended to introduce duties of care into this context. Later decisions that did so in the 1970s were the product of confusion. The duty envisaged in Hedley Byrne itself was based on the idea of an objective (voluntary) warranty of care and it has few advantages for plaintiffs in the pre-contractual context in any event, given the other remedies likely to be available on such facts.

(ii) Misstatement Liabilities as Duties Imposed by Public Courts At the other end of the spectrum, there are those who believe that the duty in misstatement cases and cases of economic loss more generally has nothing to do with the parties’ wills, other than in the most rudimentary sense that is true in all tort cases, namely, that it is always a basic precursor to legal responsibility in any tort case that a defendant’s actions (note—not duties) were voluntary. On this view, negligent misstatement cases are in principle no different from any other type of negligence case. Words are simply another form of conduct that can materially prejudice others’ interests (rather like the making of defective products) and duties of care arise from the basic normative premise that we ought to take reasonable care to avoid harming the interests of others who may foreseeably and directly be affected by what we do or say. For such commentators, Hedley Byrne rightly belongs in tort and it is appropriate to approach it within the same basic analytical framework as any other negligence case. The ‘special relationship’ requirement is simply one instantiation of the sort of ‘proximity’ relationship that gives rise 47

Third Restatement (n 30) comment (c) to §1 (‘invited reliance’).

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to duties of care elsewhere in the law, its added stringency reflecting the need to constrain duties based on the foreseeable effects of careless behaviour for countervailing ethical or pragmatic reasons. Economic rights and duties are hence a product of a mix of basic ethical considerations relating to fault and legitimate policy concerns, not private ordering; and they are certainly not something we should have to pay for. Duties of care in respect of the economic losses of others are, on this view, simply progressive, incremental extensions of an existing, welfarist tradition in tort law that is exhibited historically though the torts of deceit, injurious falsehood, passing off, procurement of a breach of contract, intimidation, conspiracy and wrongful interference with another’s trade. They exhibit the incremental creation of new, qualified rights of economic protection outside of instances in which the defendant is dishonest, or happens to have some harmful purpose in mind. This gradual genesis of additional economic rights itself reflects the rising importance of pure economic interests in the modern world, and the transition of holdings of wealth from tangible to intangible forms. To my knowledge, no one in this camp takes issue with the idea that a genuine promise to take care in the provision of advice that is reasonably and detrimentally relied on by a plaintiff ought, in principle, to give rise to liability for economic loss. They simply tend to push such cases into contract law and its equitable acolytes in estoppel. Crucially, however, they refuse to confine misstatement or economic loss duties to cases in which such promises can be inferred from a defendant’s behaviour (which is always a controversial matter), and they are sceptical of the idea that this is what is really going on in the law. They hence point to a host of tort cases in which duties have been imposed, where the inference of any promise of care on the defendant’s part to the plaintiff seems not to be feasible without engaging in the type of fiction that rapidly brings the law into disrepute. This sort of analysis is endorsed by Professor Robertson and Julia Wang (in Chapter 3), by Professor Witting (in Chapter 9)48 and by myself (in Chapter 13).49 Robertson and Wang argue that there is nothing unique, nor particularly helpful, about the use of the concept of an ‘undertaking’ or ‘assumption of responsibility’ in negligent misstatement cases. They demonstrate how the concept has been used in a wide variety of cases beyond misstatement and economic loss, including cases involving omissions and non-delegable duties of care; and they seek to dispel the illusion that there is anything meaningfully consensual about the obligations that arise in such instances. This analysis brings them into head-on collision with Beever. They are supported by Professor Witting, who also firmly rejects the idea that negligent misstatement cases are contractual, or that ‘assumptions of responsibility’ are anything more in most cases than conceptual devices manipulated by courts to achieve particular moral and policy outcomes. Such manipulation, he says, is clearly evident in English law in the case of Williams v Natural Life Health 48 See also, C Witting, Liability for Negligent Misstatements (Oxford, Oxford University Press, 2004) ch 9; ‘Duty of Care: An Analytical Approach’ (2005) 25 OJLS 33. 49 See also Barker (n 9 and n 31).

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Foods Ltd.50 Witting is scathing of the view that there is no such thing in tort law as an economic right that is not created by the defendant himself and he strongly asserts the view, which he says is pretty clear from the judgments in Hedley Byrne itself, that duties in respect of words are nothing more, nor less, than examples of duties that are imposed as a result of proximate relationships. In Chapter 13, I feed some of these ideas into an analysis of the criteria that are applied by Australian courts in what are, in many ways, the ‘crux’ misstatement cases—those in which the relationship between an advisor and the person relying on his advice is ‘indirect’. These cases (along with those involving disclaimers)51 often strain the contractual paradigms and analogies relied on by ‘voluntarists’ beyond tolerance, in my respectful view. Whilst acknowledging the presence in the case law of factors such as the ‘purpose’ for which information is given, or the defendant’s ‘intentions’ as to how it should be used (or who should use it), I suggest alternative, non-voluntaristic explanations for these concepts that root the cases firmly in tort law’s protective, welfarist tradition. Intentions and purposes go, I suggest, to the foreseeability of harm, to a defendant’s knowledge of its prospect and to the reasonableness or otherwise of a plaintiff ’s use of the information in question. They are not to be regarded, as Professors Feldthusen and Beever conceive of them, as stand-alone requirements for the existence of misstatement duties in their own right. Looking beyond these contributions, there is another influential view from the United States that must be mentioned—that of Professor Stephen Perry.52 Unlike Beever, Perry conceives of tort duties in economic loss cases as rightly belonging within that sphere and as genuinely imposed by courts, not voluntary. He nonetheless regards ‘undertakings’ and defendant ‘intentions’ as key moral concepts that serve to generate prima facie duties of care that would not otherwise exist in such cases. An ‘undertaking’ here is not (as I have suggested Beever to understand it) an implied promise to take care, or a manifestation of consent that itself serves to create a new economic duty. It is an objectively manifested, deliberate intention to induce another person to believe he may rely upon one, bringing about a relationship of dependency that interferes with that person’s freedom of choice.53 The interest protected by courts in cases like Hedley Byrne is hence not an economic interest that the plaintiff has at all (because such interests do not normally get protected in tort law), but the plaintiff ’s economic loss serves to help quantify the

50

Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) (‘Williams’). Cases in which a defendant has disclaimed responsibility, but still been found to owe a duty of care, are inconsistent with voluntaristic accounts of liability, whether the assumption of responsibility concept is construed subjectively or objectively. This was the point in Smith v Eric Bush [1990] 1 AC 831 (HL) (where liability was found despite the presence of a disclaimer). The only possible exception would be where a plaintiff was unaware of the relevant disclaimer (when it might still be logically possible to base liability on an objective approach to the defendant’s intentions). 52 Perry (n 7). 53 ibid 281–82. 51

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consequences of the defendant’s interference with his altogether distinct right to make autonomous decisions.54 Some aspects of this analysis come close to McBride and Hughes’ slightly later thesis in 1995, according to which the crucial driver of duty is the defendant’s creation and abuse of a relationship of power or trust.55 That language is certainly reflected in the opinions of some judges, including both Lord Reid in Hedley Byrne itself and Barwick CJ in Mutual Life and Citizens’ Assurance Co Ltd v Evatt.56 It makes the idea of reliance (dependence) the key one, not assumption of responsibility. But Perry’s is actually a much more radical idea than simply the one that fiduciary (or fiduciary-like) relationships give rise to obligations of economic protection. It envisages the creation by tort law of legal rights to personal autonomy per se, which is a very radical, welfarist claim.57 On Perry’s view, Hedley Byrne is hence highly significant, but for reasons very different from those we customarily associate with the case. It certainly is not a case about pure economic loss. From the point of view of the commentators and judges who disavow the language of ‘assumed’ duties or ‘undertakings’, a key point of Perry’s with which they can nonetheless all agree is this: however the individual circumstances are described that give rise to liabilities in negligence for pure economic loss, the primary tort duties involved are not voluntarily created by defendants. Perry makes his position on this clear, by citing an important point made by Professor Raz that is all too often missed by theorists.58 The mere fact, he points out, that a defendant chooses to act in a particular way (undertake a particular task), even in the certain knowledge that a legal duty of care will attach to his action, does not mean that the defendant has any normative power to create the duty, or that he is therefore its creator. It is courts that have the power and courts that create the primary duties. Tort law is a welfarist, public ordering still.

(iii) Prompts for Future Thought It is not possible to fully resolve the debate here. Professor Winfield noted in 1926 that whether or not the duties born by legal advisors and others exercising ‘common callings’ are ‘imposed’ or ‘assumed’ was contested as long ago as the seventeenth century,59 when the forms of action (on this occasion, ‘assumpsit’) served to suppress thinking about legal rights, as opposed to legal procedures. What hope is there that we shall reach unanimity now, all at once, when minds as great as those of Coke and Mansfield were unable to come to a clear view? Furthermore, it seems unlikely that the ideological oppositions that are evident in current 54

ibid 250. McBride and Hughes (n 7). 56 Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 (HCA). 57 This is not to say that the idea is normatively unattractive. But as things stand in the law, autonomy is a value reflected within certain existing legal rights, not a free-standing right in itself. That is why I describe this claim as radically welfarist. 58 Perry (n 7) 286. The same point is made by Feldthusen (Chapter 11). 59 Winfield (n 37) 189. 55

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debates will be easily reconciled. It is hard to prise anyone from their world view, even if you can persuade them to organise their office more rationally. Although consensus is an end aim of mine, I am also a realist. I confine myself for present purposes to making just four points, as prompts for further thought. First, it is clearly possible to believe that the law of tort is about primary ‘rights’ without succumbing to the idea that such economic rights as it gives are necessarily the product of private ordering.60 From the Hohfeldian point of view, whenever duties arise in cases of pure economic loss (as it is clear that they sometimes do), they are necessarily attended by correlative, qualified rights. This means that economic rights do exist in tort (because courts say that economic duties do), but it also says nothing about the origin or rationale of such rights. Rights do not come with any particular set of normative batteries supplied—they can be fuelled by a variety of different normative considerations. Second and relatedly, it is surely possible to accept that law does and should create some qualified rights to reasonable care in respect of one’s economic interests, without accepting that these rights will either be especially common (‘general’ in one sense of that word), or that the only question relevant to their formulation is the free will of the respective parties. The really important question is—what factors make out a ‘special’ case for duty? Is what we are looking for the existence of some additional positive reason for a duty that does not normally exist, or are we looking for the absence of things that otherwise might cause problems if liability for reasonably foreseeable harm were imposed—the absence of reasons against liability, such as worries about undermining free competition, party autonomy, risk allocation, norms of self-protection, or information markets?61 In practice, courts articulate a variety of factors that work together to create qualified economic rights, some of which are positive and some of which are negative. The existence of a genuine promise of care made to a plaintiff might be one of these, providing a good, positive justification for duty, and it would then simply be a question of taxonomy whether we located the case within contract or tort. It could genuinely fall within both: the promise might itself create a new duty that is authentically consensual (and therefore classically ‘contractual’ save for the absence of formality), and simultaneously prove specific knowledge on the part of a defendant that his careless words may harm a particular plaintiff ’s interests, thereby evidencing a relationship sufficiently close, determinate and direct to justify courts imposing a duty of care upon him (in tort). Nonetheless, the fact that promises could indeed positively justify economic duties of care in misstatement cases does not mean that tort law has no reason to act in their absence, or that 60 For the debate about ‘rights’ in private law see generally D Nolan and A Robertson, Rights and Private Law (Oxford, Hart Publishing, 2011). 61 The difficulties involved in producing coherent legal rules that respond to reasons of the negative type are explored in K Barker, ‘Economic Loss and the Duty of Care: A Study in the Exercise of Legal Justification’ in C Rickett (ed), Justifying Private Law Remedies (Oxford, Hart Publishing, 2008) 173. On the construction of a list of key concerns, see, seminally, J Stapleton, ‘Duty of Care and Economic Loss: A Wider Agenda’ (1991) 107 LQR 249.

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when it does recognise such duties it is promises that necessarily lie at their heart. Its logic is not so limited. Thirdly, it seems to me unlikely that any greater certainty will be introduced into this field by substituting for the existing inquiry as to whether a defendant ‘assumed responsibility’ to the plaintiff an alternative one as to whether he ‘intended’ to induce the plaintiff to rely on his words. I am brought into a respectful tension with Professor Feldthusen in this respect. This is because the language of intention is at least as slippery as that of assumption. The problem is well known to criminal lawyers and philosophers of criminal responsibility,62 who have done much to try to bring clear definition to its use in public law, but in tort law the concept of intention is loosely defined and under-theorised.63 Does a defendant who knows that it is ‘very likely’ (or even an absolute certainty) that another will rely on his words ‘intend’ that reliance, if he speaks? What is the relationship between ‘intention’ and ‘desire’, ‘purpose’, ‘subjective recklessness’, ‘knowledge’ or ‘foresight’? If a defendant’s intentions are relevant in a non-promissory way, why is this? Are they relevant from the point of view of distributive justice, on the basis that those who intend potentially bad things are themselves bad, and ‘bad people pay more’?64 Do defendant intentions simply help to define the nature of the task the defendant is performing, such that courts are then able to properly assess whether or not the task was done badly, relative to the way in which other, reasonable people would have done it? Or is the insistence on a defendant’s intention simply a ‘control device’ limiting his exposure to indeterminate liabilities? Does the fact that a defendant has made it clear that he intends his words to be used for purpose ‘X’ perhaps simply indicate that it is likely to be unforeseeable (and unreasonable) for a plaintiff rely on it for another purpose, ‘Y’? All of these are possibilities. I express my own views at the end of this book, but am under no illusion that the answer to any of these questions is easy. Although I do not personally regard a requirement of intention (whether subjective or objective) as a just precondition to a defendant’s liability for pure economic loss in cases of careless misstatement for reasons later explained, I confine myself here to observing that if the law does end up settling on it, we can expect courts to waiver considerably about its meaning. I also expect that judges will end up deliberately reading that meaning ‘up’ or ‘down’ for policy reasons in precisely the same way

62 For a particularly fine exploration in the philosophy of criminal responsibility, see A Duff, Intention, Agency and Criminal Responsibility: Philosophy of Action and the Criminal Law (Oxford, Blackwell, 1990). 63 The reasons for this are explained by P Cane, ‘Mens Rea in Tort Law’ (2000) 4 OJLS 433 (tort is more concerned than crime with victim interests and social values in constructing its conceptions of responsibility). 64 See T Weir, ‘Errare Humanum Est’ in P Birks (ed), Frontiers of Liability (Oxford, Oxford University Press, 1994) vol 2, 103. This way of understanding the role of intention may lie at the heart of comments in the High Court of Australia to the effect that where a defendant intends to induce reliance, whether or not that reliance is reasonable is no longer critical: San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 (HCA) 358.

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that they have done when defining ‘assumptions.’65 Out of the frying pan and into the fire we go. Finally, it is undoubtedly legitimate to question—as those favouring private ordering do—the extent to which broad questions of social ‘policy’ and considerations about the potential empirical social effects of advisor liabilities ought to feature in judicial reasoning.66 Some of these questions (those concerning ‘indeterminate liability’ especially) are highly controversial and courts often lack the empirical evidence, or the authority, to determine them. It is for this reason that we may now need to think more carefully about the relationship between common law and statutory solutions to the problems that misstatements raise. One possible vision of this relationship is that it is for courts to decide duty questions as a matter of interpersonal justice, guided solely by ethics, and for government then to intervene to cut back on, or supplement, the rights so created, if it considers their social side-effects to be undesirable. The way in which legislatures have intervened to change the balance of liabilities as between advisors and co-defendants responsible for the same economic loss (to which I refer in Section IVB below) provides one example of this sort of approach. I suspect that Beever might approve of it. In practice, however, the division of the respective labours of justice and social policy as between legislatures and courts is always likely to be less clean cut than this. The broader point is then really that there can be no complete solution to the question about the proper metes and bounds of misstatement liabilities, or the sorts of criteria that should be allowed to influence them in negligence law without us first developing a clear and stable conception of the respective roles and capacities of courts and governments.

IV. Intersections and Distributions of Liability This brings us neatly to Part 3 of the volume, which is designed to explore the relationship between tort liabilities for misstatement and others forms of liability in equity and under statute. It also considers the way in which both courts and legislatures have chosen to distribute liabilities as between negligent advisors and others who are also responsible for a plaintiff ’s financial losses.

A. Intersections The more sources of duty in respect of a misstatement there are, the more important it becomes to co-ordinate them efficiently. The right hand must be careful

65

On which, see Witting’s discussion of Williams (n 50) in Chapter 9. For one, especially coherent exploration of the dynamics of this issue, see A Robertson, ‘Justice, Community Welfare and the Duty of Care’ (2011) 127 LQR 370. 66

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to consider what the left is doing. One of the complications highlighted in the introduction is the fact that misrepresentations now potentially give rise to such a bewildering array of liabilities in contract (whether bilateral, unilateral or collateral), estoppel (promissory, proprietary, conventional), tort (deceit, injurious falsehood, passing off, negligence), equity (breach of fiduciary duty, knowing assistance in a breach of trust, ‘unconscionable conduct’) and under statute (liability for pre-contractual misrepresentation, misleading or deceptive conduct, or the breach of directors’ statutory obligations, to name but some examples). Each of these regimes is distinct, each has its own sphere of application, conceptual apparatus, liability requirements, causation and remoteness of damages principles, remedies, defences, limitation rules and principles of loss assessment. Historically, there has been tension between the common law and equity. This was evident in Derry v Peek.67 In the modern day, that relationship is more mutually respectful and the tension has softened into a concern to ensure that justice is done without one set of rules treading on the toes of the other, in a complementary way. The additional introduction in some jurisdictions of statutory regimes has, however, made the challenge of maintaining overall coherence within the system more difficult. Unless the field is to be completely codified (an unlikely prospect in most common law jurisdictions), courts and legislatures must become better team players. In Chapter 6, Professor Finn demonstrates not just the antiquity of equitable doctrine in combating misrepresentation and other forms of equitable fraud, but its fertility as a source of rights and remedies in the current day. Through the rescue and renaissance of its earlier jurisdiction to award compensation for pure economic loss, he argues, equity now does much ‘tort work’ and plays a crucial role in bringing fairness to financial dealings. Finn applauds equity’s more radical uses in this regard in several jurisdictions and suggests that discretionary equitable compensation should be available in respect of all wrongs falling within equity’s exclusive jurisdiction. This is a welfarist vision in which equitable doctrine operates to moderate classical voluntary orderings even in the commercial arena, responding directly to plaintiff vulnerabilities. Such vulnerabilities are arguably greater in the modern day than they have been in the past, owing to the extraordinary complexity of many financial products and investors’ corresponding dependence on expert opinion. By contrast, Professor Bant and Dr Paterson (in Chapter 7) and Professor McLauchlan (in Chapter 12) explore the relationship between common law principles developed in contract and tort and the strict liability statutory regimes now applying in Australia and New Zealand. Bant and Paterson envisage a constructive, two-way interpretive relationship between the law of negligence and the provisions of Australia’s ‘strict’ liability regime for misleading or deceptive conduct. Negligence concepts, they suggest, can sometimes help to shed light on the Act’s provisions; and, reciprocally, the standards in the Act can sometimes assist courts in deciding duty questions at common law. 67

Derry v Peek (1889) 14 App Cas 337 (HL).

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The key phrase is ‘sometimes’. There are bound to be constraints on the extent to which one can interpret the provisions of a strict-liability regulatory provision by reference to a fault-based tort, as the authors admit. This is especially likely to be the case where a statute was introduced to reverse a direction that has been taken in tort, or (as in this instance) to consciously step beyond it in terms of the protection accorded to plaintiffs. If we set too much store by negligence concepts in interpreting legislation in the latter type of case, there is a risk of hobbling what was intended by Parliament to be a liberalising, welfarist development. But ‘strict liability’ statutes are sometimes not as far removed from negligence regimes in substance as they appear to be superficially68 and where this is so, there must be merit in the authors’ views that it would be counter-intuitive to entirely ignore judicial precedents regarding an issue common to both regimes. This is one way of creating a constructive interface between private law and public regulation; and of ensuring a co-ordinated approach to the law as a whole. If Bant and Paterson are right, there is more space within the strict liability provisions of the Act for ideas about fault, defendant intentions and plaintiffs’ obligations to take reasonable measures to protect themselves than one might assume. Professor MacLauchlan’s account of the New Zealand legislation is more openly critical. The statutory scheme relating to pre-contractual misrepresentation69 that was introduced to bring simplicity to the law has, in his view, merely muddled up expectation and reliance-based remedies in ways that are not just incoherent, but sometimes harmful to plaintiffs. Furthermore, its one main advantage— simplicity—has been undercut by the subsequent introduction of misleading or deceptive practices legislation70 that was drafted in apparent ignorance (or disregard) of its aims. His account highlights, I think, the importance of keeping misrepresentation remedies connected to their underlying normative justifications—to their primary rights and the reasons underpinning those rights. A completely discretionary smorgasbord in which these ties are severed is an invitation to chaos. It also highlights what is potentially a significant problem for the coherence of the law of misstatements as a whole, which is the fact that governments have no formal obligation to respect prior legislative or judicial ‘precedents’ in the way that judges do. An ill-considered piece of legislation can at one careless stroke introduce radical incoherence into a field of law and no one—save another, later government—can do anything about it. Although I am not opposed to legislating private law, this is clearly a risk that it entails. My personal view is that legislative provisions in private law matters should always be enacted with a view to achieving coherent systemic solutions, not simply as isolated expressions of the political will of the moment. It is not just judges that have an obligation to develop the law 68 This is true even of regimes that are designed to deal with personal injuries. See the Consumer Protection Act 1987 (UK), in respect of which it has been said that the protections mimic negligence law in some respects (in some cases), although the onus of proof is usually reversed: see K Oliphant (ed), The Law of Tort, 2nd edn (London, Butterworths, 2007) [19.58]–[19.59]. 69 Contractual Remedies Act 1979 (NZ). 70 Fair Trading Act 1986 (NZ).

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in a way that avoids contradiction and systemic incoherence in basic, private law matters. Governments do too.

B. Distribution Finally, we come to the matter of distribution. An advisor is often only one party among several responsible for a plaintiff ’s financial loss. Sometimes, indeed, he is engaged by a plaintiff precisely in order to protect the latter against the risks created by other wrongdoers, including contract breakers and fraudsters. In these circumstances, if the other wrongdoer becomes insolvent, the advisor was, for many years after Hedley Byrne, responsible for paying 100 per cent of the plaintiff ’s loss, subject to whatever contribution he could obtain from co-defendants. That system of ‘joint and several’ liability was accepted for decades as perfectly sound on both welfarist and corrective justice grounds, but it has been questioned in recent years.71 Several jurisdictions have introduced reforms that presumptively make a defendant advisor liable for only a proportion of the jointly caused, indivisible loss, so as to throw the risk of insolvencies back onto plaintiffs. This is now the position in Australia, for example. At a time when insolvent wrongdoers are common and financial misdoings have been rife in the market, this has had potentially serious repercussions for plaintiffs.72 In Chapter 8, Dr Harder examines in great detail the way in which liabilities are now distributed between advisors and their clients’ contracting partners in circumstances where both advisor and partner are legally responsible for causing the very same financial loss. He examines the rules under both under joint and several liability systems (such as still prevail in the United Kingdom and New Zealand) and under the complex proportionate liability system that now exists in Australia. His detailed work sheds much needed light on a bewilderingly complex area of law. Proportionate liability systems come with a health warning. They are sometimes billed as ‘fairer’ to defendants, but this conclusion is actually very questionable.73 As between an innocent plaintiff and a careless advisor, the risk of one or more other defendants proving to be insolvent seems more fairly borne by the advisor, whether from the point of view of corrective,74 or localised distributive justice. 71

See Barker and Steele (n 11). For an exhibition of the new risk distribution, see Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd (2013) 247 CLR 613 (HCA). 73 Barker and Steele (n 11). See also W McNichols, ‘Judicial Elimination of Joint and Several Liability because of Comparative Negligence—A Puzzling Choice’ (1979) 32 Oklahoma Law Review 1; J Swanton and B McDonald, ‘Reforms to the Law of Joint and Several Liability: Introduction of Proportionate Liability’ (1997) 5 Torts Law Journal 1; A Burrows, ‘Should One Reform Joint and Several Liability’ in N Mullany and A Linden (eds), Torts Tomorrow: A Tribute to John Fleming (North Ryde, LBC Information Services, 1998) 102. 74 R Wright, ‘Allocating Liability among Multiple Responsible Causes: A Principled Defense of Joint and Several Liability for Actual Harm and Risk Exposure’ (1987–88) 21 University of California Davis Law Review 1141. 72

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Some systems try to tweak things further, by assigning the risk of insolvencies between all remaining solvent parties, including the plaintiff, in proportion to their own level of responsibility for the harm,75 but even these systems leave the plaintiff bearing some part of a loss that in principle he should not have to bear. Although such systems can potentially relieve advisors of the burden of very high liabilities flowing from financial disasters, and although they have been applauded (in fact, of course, they were often instigated) by the insurance industry, they are also proving very complex and the complexities seem almost certain to inhibit settlements and cause great confusion. It is not clear that the changes are worth the systemic costs, particular now that insurance markets have largely recovered from recent shocks. If highly uncertain and crushing liabilities stemming from recent global events really are a problem for auditors, accountants and other advisors and if they really do threaten the viability of information markets, then a simpler solution for keeping liabilities under control might lie, I suggest, in legislative capping, rather than proportionate liability. As is well known, caps work disproportionately harshly against those suffering the biggest losses but, on the other hand, they are clear and can be easily adjusted periodically to meet market conditions. They might enable advisors and insurers to overcome some of the indeterminacies regarding their liabilities that arguably cause problems for pricing and for liability cover. Addressing concerns about crushing or indeterminate liability through a legislative route may also be more acceptable than leaving judges to limit plaintiffs’ rights at common law in order to meet the same concerns. Legislatures can canvas empirical evidence about social effects in ways that judges cannot.

V. Conclusion Meanings change. Hedley Byrne was, at the time it was decided, a case of significance in English law concerning the power of words and their inherent risks. Now, it is possible to divine more in its judgments than their Lordships at the time could possibly have imagined—perhaps much more than they would ever have desired. Sadly for them, it is not possible to control that which we create and this is most especially true of words. In the second decade of the twenty-first century, the law of negligent misstatement is part of a much bigger and still-developing system for regulating the risks of economic markets. It is a small, but still potentially important, player on a field that has been reduced to a state of some liquefaction by the shudders of recent economic events and into which, in the meantime, other legal players have entered. It is also now the focal point for the next grand clash of liberal-economic and welfarist ideologies, for debates about the way in which private law should be organised; about the way our judges should reason; and 75

This is the case in some US jurisdictions. See further Barker and Steele (n 11).

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about the respective responsibilities of courts and legislatures in doing justice and dealing with its social effects. If the ‘law of misstatements’ is to make more sense in the twenty-first century than it has done in the last 30 years, it will require not just more thinking about basic normative concerns and about the way those concerns can be integrated sensibly into stable, predictable rules, but also the development of closer coordination between the various legal players which we have set upon the field. Each of these players needs to have a keen eye both for the ball at its feet and for other doctrines and remedies on the pitch. That is a private law challenge, but no longer simply a challenge for judges. It is a challenge laid down for all those who aspire to make of the variegated pieces of the law a better overall picture, including governments. This book, it is hoped, improves the chances of a cleaner game.

Part 2

History, Concepts and Theory

2 Hedley Byrne v Heller in Australia: ‘Never has there been such a Judicial Jamboree’ WARREN SWAIN*

Never has there been such a judicial jamboree as Hedley Byrne, where one almost has the feeling that their Lordships had been on a trip to Mount Olympus and perhaps smoked a joint on the bus. Something certainly went to their heads, presumably not the merits of the claim which they dismissed.1

Just two months after the Law Lords had handed down their speeches in Hedley Byrne & Co Ltd v Heller & Partners Ltd,2 The Solicitors’ Journal concluded that ‘the case must now rank as a landmark in the developing pattern and scope of liability in negligence’.3 English commentators were divided on the merits of Hedley Byrne, but all of them immediately recognised its importance.4 The leading tort treatise, Salmon on the Law of Torts, described Hedley Byrne as ‘the most striking decision in the field of negligence, perhaps in torts in general, since Donoghue v Stevenson’.5 The judgment attracted comment across the world.6 * At the time of writing this paper I was an Associate Professor at the TC Beirne School of Law at the University of Queensland. I am grateful to the Supreme Court of Queensland Library for appointing me academic in residence during the same period. I would also like to thank Professor Kit Barker for his helpful comments on a draft. Any errors remain my own. 1 T Weir, ‘Errare Humanum Est’ in P Birks (ed), The Frontiers of Liability, vol 2 (Oxford, Oxford University Press, 1994) 103, 105. 2 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL). 3 JB Garrett, ‘Negligent Misstatements and Special Relationships’ (1963) 107 The Solicitors Journal 582. 4 T Weir, ‘Liability for Syntax’ [1963] CLJ 216; R Stevens, ‘Hedley Byrne v Heller: Judicial Creativity and Doctrinal Possibility’ (1964) 27 MLR 121; PM North, ‘Professional Negligence: A Postscript’ [1964] The Journal of Business Law 231; PS Atiyah, ‘Negligence and Economic Loss’ (1967) 83 LQR 248. 5 RFV Heuston (ed), Salmon on the Law of Torts, 14th edn (London, Sweet & Maxwell, 1965) 284–85. 6 In the United States: AL Goodhart, ‘Liability for Innocent but Negligent Misrepresentations’ (1964–1965) 74 Yale Law Journal 286; Anon, ‘Negligent Misrepresentation’ (1963–1964) 77 Harvard Law Review 773; A Rigrod, ‘Negligence: Negligent Misrepresentation: The Concept of the Special Relationship: Hedley Byrne & Co v Heller & Partners Ltd’ (1964–1965) 50 Cornell Law Quarterly 331. In Canada: WK Mis, ‘Torts—Negligence—Inaccurate Statements of Financial Standing Intended to Be Relied Upon’ (1963–1964) 3 Alberta Law Review 318; DM Gordon, ‘Hedley Byrne v Heller in the House of Lords’ (1964–1966) 2 University of British Columbia Law Review 113; JA Walker, ‘The Bold Spirits Have Conquered: Hedley Byrne & Co v Heller’ (1964–1965) 3 Osgoode Hall Law Journal 89.

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Writing in the Australian Law Journal in 1964,7 DM Gordon,8 began by observing that the decision ‘presents more than one drastic break with tradition’ and concluded that it reflected the growing ‘Americanisation of English law’.9 A paper on Hedley Byrne by Tony Honoré was one of the highlights of a joint conference between the Society of the Public Teachers of Law and the Australasian Law Schools Association in Sydney in August 1965.10 He was more cautious and concluded that ‘we should not delude ourselves that Hedley Byrne has the reach and potentiality of Donoghue v Stevenson’. Fifty years ago there were many fewer Australian law journals but the decision was variously welcomed,11 it was downplayed,12 and it was predicted that it would lead to more business for insurance companies.13 All five of the Law Lords, Lord Reid, Lord Morris, Lord Hodson, Lord Devlin and Lord Pearce delivered full speeches in Hedley Byrne. Although Lord Reid had sat since 1948, the other Law Lords were from a new generation14 and it is interesting to speculate what the outcome might have been before the original panel.15 The leading speech, given by Lord Reid, stressed the fact that the damage arose as a result of words rather than deeds.16 Lord Hodson17 and Lord Devlin18 also recognised that, as things stood, statements fell outside the scope of negligence. Another distinction, the one between economic loss and physical injury, began to emerge in the early twentieth century.19 There was never a complete bar on recovery 7

‘Hedley Byrne v Heller in the House of Lords’ (1964) 38 Australian Law Journal 39, 79. Gordon was a Canadian barrister who has been described as ‘a pioneer of Canadian administrative law scholarship’: K Roach, ‘The Administrative Law Scholarship of DM Gordon’ (1989) 34 McGill Law Journal 1, 2. 9 Gordon (n 7) 88. 10 AM Honoré, ‘Hedley Byrne & Co Ltd v Heller & Partners Ltd’ (1964–1965) 8 Journal of Society of Public Teachers of Law NS 284. For an account of this joint conference see, F Cownie, A Great and Noble Occupation: the History of the Society of Legal Scholars (Oxford, Hart Publishing, 2009) 113. 11 TM Clarke, ‘Hedley Byrne and Company v Heller and Partners Limited’ (1964–1967) 2 University of Tasmania Law Review 85. 12 D Payne, ‘Hedley Byrne & Co Ltd v Heller & Partners Ltd’ (1963–1964) 6 University of Western Australia Law Review 467, 501. 13 JM Fitzgerald, ‘Liability in Negligence for Statements. Hedley Byrne & Co Ltd v Heller and Partners Ltd’ (1965–1967) 5 Sydney Law Review 162. 14 Lord Hodson and Lord Morris were appointed in 1960, Lord Devlin in 1961, and Lord Pearce in 1962. 15 The original panel consisted of Lord Radcliffe, Lord Cohen, Lord MacDermott, Lord Jenkins and Lord Guest. The hearing had to be abandoned after a day in order that Lord Radcliffe could preside over a public inquiry. For the story, see L Blom-Cooper and G Drewry, ‘Towards a System of Administrative Law: The Reid and Wilberforce Era, 1945–82’ in L Blom-Cooper, B Dickson and G Drewry, The Judicial House of Lords 1876–2009 (Oxford, Oxford University Press, 2009) 209, 214. Gerald Gardiner QC, counsel for the appellant, is said to have persuaded the Lord Chancellor, Lord Dilhorne, to include more common law judges on the new panel. 16 Hedley Byrne (n 2) 482–83. Lord Pearce also placed weight on this issue: see Hedley Byrne (n 2) 534. This reflected earlier dicta from Lord Haldane in Nocton v Lord Ashburton [1914] AC 932 (HL) 948. 17 Hedley Byrne (n 2) 506. 18 ibid 528. 19 J Gordley, ‘The Rule Against Recovery in Negligence for Pure Economic Loss: an Historical Accident?’ in M Bussani and VV Palmer (eds), Pure Economic Loss in Europe (Cambridge, Cambridge University Press, 2003) 25, 47–50. Some of the leading cases cited against recovery for pure economic loss such as Cattle v The Stockton Waterworks Co (1875) LR 10 QB 453 (QB) and Simpson & Co v Thomson [1877] 3 AC 279 (HL) were decided on other grounds. 8

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for pure economic loss.20 Despite the fact that in Hedley Byrne itself the nature of the loss was either overlooked,21 was seen as unimportant22 or as presenting no obstacle,23 the fact that it was a claim for pure economic loss would later be regarded as significant.24 All of the Law Lords accepted that this was not the occasion for a straightforward application of Donoghue v Stevenson.25 Lord Devlin proposed imposing a duty of care when there was a ‘relationship equivalent’ to contract, which was described as ‘circumstances in which, but for the absence of consideration, there would be a contract’.26 In an important passage he elaborated further: ‘Where, as in the present case, what is relied on is a particular relationship created ad hoc, it will be necessary to examine the particular facts to see whether there is an express or implied undertaking of responsibility’.27 The phrase ‘assumption of responsibility’ was a consistent part of Lord Devlin’s reasoning.28 Lord Morris used the same terms,29 but he also stressed reasonable reliance,30 and ran the two ideas together.31 Lord Hodson expressed agreement with him, but appeared to endorse a reasonable reliance test.32 Lord Reid can also be seen to combine elements of ‘assumption of responsibility’ and ‘reliance’.33 Lord Pearce offered no substantive comment on this point. Lord Devlin said ‘in so far as your Lordships describe the circumstances in which an implication will ordinarily be drawn, I am prepared to adopt any one of your Lordships’ statements’.34 He presumably saw no difference in the tests—a point which is undermined by the fact that he was the only Law Lord

20 Morrison Steamship Co Ltd v Greystoke Castle (Cargo Owners) [1947] AC 265 (HL). See Hedley Byrne (n 2) 509 (Lord Hodson), 536 (Lord Pearce). It has been argued that this decision depended on the doctrines of maritime law: Spartan Steel and Alloys Ltd v Martin & Co (Contractors) [1973] QB 27 (CA) 48 (Lawton LJ); Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136 CLR 529 (HCA) 548 (Gibbs J); Murphy v Brentwood District Council [1991] 1 AC 398 (HL) 468 (Lord Keith). For a contrary view, see Junior Books v Veitchi [1983] 1 AC 520 (HL) 540 (Lord Roskill). 21 Hedley Byrne (n 2) 480, ‘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’ (Lord Reid). 22 ibid 506, 508 (Lord Hodson), 518 (Lord Devlin). 23 ibid 536 (Lord Pearce). 24 Weller & Co v Foot & Mouth Disease Research Institute [1966] 1 QB 569 (QB) 585. 25 Donoghue v Stevenson [1932] AC 562 (HL). See Hedley Byrne (n 2) 482–83 (Lord Reid), 524, 531 (Lord Devlin), 536 (Lord Pearce). For this important point subsequently, see White v Jones [1995] 2 AC 207 (HL) 287 (Lord Mustill). 26 Hedley Byrne (n 2) 529. 27 ibid 530. 28 ibid 529, 530, 533. 29 ibid 494. 30 ibid 496. 31 ibid 502–03. 32 ibid 514. 33 ibid 486. 34 ibid 530.

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who unequivocally thought35 that, were it not for the ‘without responsibility’ clause, the respondents would have been liable.36

I. The Law Prior to Hedley Byrne There were a number of well-established methods for securing relief after a misrepresentation. Some representations are also contractual warranties.37 The action of deceit, while no longer used for breach of warranty, continued to play a key role. In England, after a brief flirtation with a broader notion of fraudulent misrepresentation,38 by the mid-nineteenth century in the action of deceit it was settled that ‘personal moral fraud’ was required.39 The plaintiff needed to prove knowledge that the statement was false and an intention to deceive on the part of the defendant.40 It took some time before it was definitively settled whether or not negligence was also sufficient.41 The House of Lords in Derry v Peek42 made clear that a mere failure to take care was not enough. This situation was distinct from a statement made recklessly as to whether it was true or false.43 Frederick Pollock complained that ‘all Lincoln’s Inn’ thought that the House of Lords had come to the wrong conclusion44 and would thereafter campaign without success against the decision.45 Fraudulent transactions might also be rescinded in equity. The necessity for finding a legal response to misrepresentation had become more acute with the rise of the joint stock company.46 When shares were purchased on the back of a false, but not necessarily fraudulent, statement in a company prospectus the

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ibid 532. The other speeches are slightly unclear, Hedley Byrne (n 2) 512–13 but cf 514 (Lord Hodson), 504 (Lord Morris) who seem to take the opposite view although it is impossible to be sure. Lord Reid and Lord Pearce make no comment either way. It can certainly be argued that Lord Devlin’s test for the duty of care was the widest but even that depends on the way it is applied, see Mutual Life Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 (HCA) 594. 37 Stuart v Wilkins (1778) 1 Doug 18, 99 ER 15. An early Australian illustration can be found in Ellis v Cuthbert [1829] NSWSupC 61. 38 M Lobban, ‘Contractual Fraud in Law and Equity, c1750–c1850’ (1997) 17 OJLS 441, 472–73. 39 Clarke v Dickson (1859) 28 LJNS 225, 227. What follows draws upon M Lobban, ‘Nineteenth Century Frauds in Company Formation: Derry v Peek in Context’ (1996) 112 LQR 287. 40 Bale v Cleland (1864) 4 F & F 117, 176 ER 494. 41 Taylor v Ashton (1843) 11 M & W 401, 152 ER 860. But cf Evans v Edmonds (1853) 13 CB 777, 786, 138 ER 1407; Smith v Chadwick (1882) 20 Ch D 27 (CA) 44. 42 Derry v Peek (1889) 14 App Cas 337 (HL). 43 The Court of Appeal had conflated recklessness with absence of care. Peek v Derry (1888) 37 Ch D 541 (CA) 568 (Cotton LJ). 44 M De Wolfe Howe (ed), The Pollock Holmes Letters, vol 1 (Cambridge, Cambridge University Press, 1942) 215. 45 N Duxbury, Frederick Pollock and the English Juristic Tradition (Oxford, Oxford University Press, 2004) 316–18. He would describe the decision as ‘his enemy’, see Howe (n 44) 49. 46 R Harris, Industrializing English Law (Cambridge, Cambridge University Press, 2000) 218–23. 36

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misrepresentation came to be treated as a ‘legal’ fraud sufficient to rescind a contract.47 The same principles were soon applied more widely.48 This extension of relief to innocent misrepresentations created new tensions. The award of an indemnity was coterminous with rescission. It was distinguished from the award of damages.49 A second equitable pecuniary remedy reflected the notion that a person should make good their representations.50 This was closer to the idea of compensation51 without ever developing into a general remedy.52 For a fleeting moment after Heaven v Pender53 it was possible that a general negligence action for misrepresentation might have developed.54 It was not to be. The courts soon began to use Derry v Peek in order to block such claims, ignoring the fact that the decision concerned deceit and not negligence.55 Misstatements were covered by a patchwork of remedies. Company prospectuses fell within a statute.56 Damages could be recovered in deceit for fraud, but not negligence. Rescission might be granted for negligent and innocent misstatements.57 In Nocton v Lord Ashburton58 the House of Lords ruled that a negligent statement, if made in a fiduciary capacity, left the maker liable to pay compensation for breach of a fiduciary duty. Pollock was delighted and wrote that ‘Learned friends whom it amuses to read between the lines may be of opinion that Lord Haldane would have liked to get rid of Derry v Peek altogether if he had been free to do so’.59 47 M Lobban, ‘Contract’ in W Cornish, S Anderson, R Cocks, M Lobban, P Polden, K Smith, The Oxford History of the Laws of England Volume XII 1820–1914: Private Law (Oxford, Oxford University Press, 2010) 423–25. For example, Reese River Silver Mining Co v Smith (1869) LR 4 HL 64 (HL). On the difference between legal and moral fraud (of the sort required at common law), see Weir v Bell (1878) 3 Ex D 238 (CA) 243. 48 Hart v Swaine (1877) 7 Ch D 42 (Ch). 49 Newbigging v Adam (1886) 34 Ch D 582 (CA) 594; C Morison, Rescission of Contracts (London, Stevens & Haynes, 1916) 201. For the wider issue of the relationship between this remedy and the common law, which caused the courts some problems, see Lobban (n 47) 426–29. 50 Burrowes v Lock (1805) 10 Ves 470, 32 ER 927; Slim v Croucher (1860) 1 De GF & J 518, 45 ER 462. 51 Lobban (n 47) 417. 52 IE Davidson, ‘The Equitable Remedy of Compensation’ (1981–1982) 13 Melbourne University Law Review 349, 357–70. For the operation of compensation in the modern law, see D O’Sullivan, S Elliot, R Zakrzewski, The Law of Rescission (Oxford, Oxford University Press, 2008) 17.30–17.64 53 Heaven v Pender (1883) 11 QBD 503 (CA). 54 Cann v Willson (1888) 39 Ch D 39 (Ch). This is probably not a strong authority. Although the decision rested on a negligent misrepresentation, Chitty J also suggests that the valuation was fraudulent. No other support for negligent misstatement has been found in the case law but it was favoured by Pollock, Howe (n 44) 113. 55 D Ibbetson, A Historical Introduction to the Law of Obligations (Oxford, Oxford University Press, 1999) 242–43; Scholes v Brook (1891) 63 LT (NS) 837 (Ch); Le Lievre v Gould [1893] 1 QB 491 (CA). 56 Directors Liability Act (1890) 53 & 54 Vict c 64, s 3 and subsequent legislation. 57 Redgrave v Hurd (1881) 20 Ch D 1 (CA) 12. In this respect as Pollock noted, the remedy of rescission and deceit were not co-extensive, F Pollock, The Law of Torts: A Treatise on the Principles of Obligations Arising from Civil Wrongs in the Common Law, 2nd edn (London, Stevens and Sons, 1890) 260. 58 Nocton (n 16). 59 ‘Nocton v Lord Ashburton’ (1915) 31 LQR 93, 95. Lord Haldane had discussed the case with Pollock a month before the speeches were handed down: Howe (n 44) 215. Pollock devoted surprisingly little space to the decision in the first edition of his textbook to appear after Nocton v Lord Ashburton, see Frederick Pollock, The Law of Torts: A Treatise on the Principles of Obligations arising from Civil Wrongs in the Common Law, 10th edn (London, Stevens and Sons, 1916) 307.

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While Nocton v Lord Ashburton helped to minimise the consequences of earlier decisions60 it did not entirely ameliorate all of the difficulties surrounding recovery when a misstatement was not fraudulent. Donoghue v Stevenson61 made no major or immediate impact on liability for misstatements.62 Despite the odd example of physical injury or damage to property63 it was not until the 1950s that recovery was seriously contemplated in cases of economic loss caused by a negligent misstatement.64 Many of the early Australian decisions on misstatement involved land sales by auction. Speaking in 1841, Dowling CJ had observed that ‘In consequence of the great transfer of property by auction in this colony, it was proper that the law should be known, and settled’.65 A few years earlier in Cape v McIntosh66 an action of deceit was brought after the sale of a property at an auction, which had been falsely described in an advertisement. The same judge had remarked on the impropriety in auctioneers of practicing that figurative description of property entrusted to them for sale, which they were in the habit of doing, thereby imparting to it by a flourish of their fancies, a character and value which was totally inconsistent with the fact.

It was not practical, he said, to expect potential buyers to travel hundreds of miles in order to inspect a property prior to making a bid. Some of those who had purchased property simply wanted the contract to be rescinded and to recover the price paid.67 Executed conveyances of land would only be set aside if the misrepresentation was fraudulent.68 As for deceit itself, in King v Piggott, Lutwyche J stressed that it was necessary to show ‘moral’ as well as a legal fraud: If a party makes a representation which he knows to be false, or if it be false in fact, and he does not believe it to be true, and makes it for a fraudulent purpose, he commits both a legal and a moral fraud for which he is responsible in damages.69 60 The Hon Mr Justice Gummow, ‘Compensation for Breach of Fiduciary Duty’ in TG Youdan (ed), Equity, Fiduciaries and Trusts (Toronto, Carswell, 1989) 57, 91. 61 Donoghue v Stevenson (n 25). 62 Old Gate Estates Ltd v Toplis & Harding & Russell (1939) 3 All ER 209 (KB) 216 (Wrottesley J) limiting Donoghue v Stevenson to injury to ‘life, limb or health’. 63 Clayton v Woodman [1961] 3 All ER 249 (QB). The decision was overturned on the facts in the Court of Appeal: [1962] 2 QB 533 (CA). As a means of distinguishing Le Lievre (n 55) Salmon J drew a distinction between a misstatement and an instruction, [1961] 3 All ER 249, 255. For a much earlier example, see Little v Port Talbot Co (The Apollo) [1891] AC 499 (HL). See also Clay v Crump [1964] 1 QB 533(CA). 64 In Candler v Crane, Christmas & Co [1951] 2 KB 164 (CA) 182, Denning LJ was in the minority. For Lord Denning’s memories of the decision, see Lord Denning, The Discipline of Law (London, Butterworths, 1979) 229–36. See also Woods v Martins Bank Ltd [1959] 1 QB 55 (QB) where Salmon J held a bank was liable for negligent financial advice given to a customer. 65 Lyons v Isler [1841] NSWSupC 59. 66 Cape v McIntosh [1835] NSWSupC 15. 67 Fisher v Yeomans [1841] NSWSupC 80; Dent v Lyons [1841] NSWSupC 108; Dent v Lyons [1842] NSWSupC 11. 68 Stewart v Foulkes [1845] NSWSupC 4; Stuart v Foulkes [1847] NSWSupC 54. This became known as the rule in Seddon’s case, after Seddon v North Eastern Salt Co Ltd [1905] 1 Ch 326 (Ch), and it has caused some vexation in Australia; for an account, see N Seddon, R Bigwood, M Ellinghaus, Cheshire and Fifoot Law of Contract, 10th Australian edn (Chatswood, Lexis Nexis, 2012) 559–61. 69 King v Piggott (1859) 3 SCR 66, 68.

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Australian judges were careful to draw a line between liability in equity and the common law action of deceit.70 Equity allowed rescission and an indemnity,71 which was different from an award of damages.72 Yet the distinction did not stop Stawell CJ relying on some English equity cases in order to argue in Paternoster v Hackett73 a case of common law deceit: And this, on the broad principle that no man injured by the gross negligence of another who, recklessly indifferent, makes rash statements, ignorant whether they are true or false, is without redress against the person who makes such statements.74

This was not the only allusion to reckless behaviour.75 But as Stawell CJ also pointed out, fraud was to be equated with ‘moral turpitude’.76 This approach was consistent with Derry v Peek77 and prevented recovery for negligent misstatements in Australia as well.78 At the same time, in a decision which pre-dated Nocton v Lord Ashburton by a decade, it was held that, were the parties in a fiduciary relationship, compensation might be payable in the absence of fraud.79 Within the limits of the law as it stood, there was a conscious desire to protect against behaviour falling short of fraud, as Madden CJ explained: ‘The times are prolific enough of cases in which people commit acts which just touch on fraud, and to apply such refinements as are suggested here would merely create lurking places for evildoers’.80 A division between physical injury and pure economic loss was sharply drawn in Australia81 but the fact that the loss was caused by words was no bar.82

II. Hedley Byrne v Heller: The Immediate Aftermath of the Decision in Australia The decades following the Second World War, saw the growth of Australian law schools,83 the emergence of a home-grown academic literature and a greater 70

Paternoster v Hackett (1880) 6 VLR 232 (VCA) 243 (Stephen J). Examples include: Sibley v Grosvenor (1916) 21 CLR 469 (HCA); Brown v Smitt (1924) 34 CLR 160 (HCA). 72 Curwen v Yan Yean Land Co Ltd (1891) 17 VLR 745 (VCA) 751–52 (Higinbotham CJ). 73 Stawell LJ relied on Hart (n 48); Reese River Silver Mining (n 47). See Lobban (n 47) 424–25. 74 Paternoster v Hackett (1880) 7 VLR 396 (VCA) 403. 75 Allan v Gotch (1883) 9 VLR 371 (VCA) 375. 76 ibid 375. 77 (1889) 14 App Cas 337 (HL) 374. For the modern application of Derry v Peek in Australia, see Gould v Vaggelas (1985) 157 CLR 215 (HCA); Magill v Magill (2006) 226 CLR 551 (HCA). 78 Robinson v Abbott (1894) 20 VLR 346 (VCA) 367 (Holroyd J); Maye v Colonial Mutual Life Assurance (1924) 35 CLR 14 (HCA) 30; Major v Bretherton (1928) 41 CLR 62 (HCA) 71. 79 Robinson v Abbott (n 78). See also McKenzie v McDonald [1927] VLR 134 (VSC) 146. 80 Robinson v Abbott (n 78) 381. 81 Levi v Colgate-Palmolive (1941) 41 SR NSW 48 (NSWSC) 50; Sinclair v Cleary [1946] ST R Qd 74 (QLDSC) 79. 82 Voli v Ingewood Shire Council (1963) 110 CLR 74 (HCA). 83 For some accounts, see H Tarlo, ‘Law School in the Sixties: A Fragmented Memoir’ (1985–1987) 14 University of Queensland Law Journal 14. For a snapshot of the 1970s, see Legal Education in Australia (Melbourne, Australian Law Council Foundation, 1978). 71

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willingness to challenge preconceived ideas.84 Negligent misstatements were no exception.85 The English tort lawyer, RVF Heuston, writing just before Hedley Byrne, even went so far as to predict that the High Court of Australia might follow Denning LJ’s dissent in Candler v Crane, Christmas & Co.86 With the advent of Hedley Byrne, his prediction did not have to be tested. In the first edition of his textbook to be published after Hedley Byrne, John Fleming, under the heading of economic loss, welcomed the change of direction: This calamitous trend was at last reversed in 1963 when in Hedley Byrne v Heller the House of Lords, taking a leaf from the Restatement, introduced a limited duty of care for persons who take it upon themselves to give requested information or advice, directly or through an intermediary, to someone who, as they know or should know, will place reliance on it to his financial detriment.87

While welcoming the change, Fleming still noted that this was a ‘cautious formulation of the duty’.88 Hedley Byrne began to attract attention in the Australian courts almost immediately. Windeyer J described it as ‘important’.89 In Uren v John Fairfax & Sons Pty Ltd, the same judge used Lord Devlin’s speech in order to argue that it was ‘general conceptions that count in the development of the common law’.90 Hedley Byrne was first specifically pleaded in Australia in early 1966.91 The courts proceeded cautiously to begin with. In one early decision, Dominion Freeholders Ltd v Aird, Spargo, Wallace P suggested that there was no special relationship between the

84 This should be contrasted with the earlier statement by Dixon J in Victoria Park Racing and Recreation Grounds Co Ltd v Taylor (1937) 58 CLR 479 (HCA) 505. Importantly J Fleming, The Law of Torts was first published in 1957. Other examples from this period include: A Harari, The Place of Negligence in the Law of Torts (Sydney, The Law Book Company, 1962); R Parsons, ‘Negligence, Contributory Negligence and the Man Who Does Not Ride the Bus to Clapham’ (1957–1958) 1 Melbourne University Law Review 163; H Lücke, ‘Towards a General Theory of Negligence and Occupiers’ Liability’ (1959–1960) 2 Melbourne University Law Review 472. Scholars born outside Australia played a particularly important role, see M Lunney, ‘Legal émigrés and the development of Australian Tort Law’ (2012) 36 Melbourne University Law Review 494. 85 Justice Fullagar, ‘Liability for Representations at Common Law’ (1951) 25 Australian Law Journal 278; WL Morison, ‘Liability in Negligence for False Statements’ (1951) 67 LQR 212. 86 RFV Heuston, ‘The Law of Torts in Australia’ (1959–1960) 2 Melbourne University Law Review 35, 40. 87 J Fleming, The Law of Torts, 3rd edn (Sydney, The Law Book Company, 1965) 168. The first general Australian tort textbook after Fleming’s did not appear until 1970: PFP Higgins, Elements of Torts in Australia (Sydney, Butterworths, 1970). A casebook, WL Morison, Cases on Torts (Sydney, The Law Book Company, 1955) was also widely used. I am grateful to Dr John Keeler for his thoughts on tort law teaching in the 1960s and to Professor Horst Lücke for putting us in touch. Higgins saw his work as distinctly Australian and in this respect it was an important step forward, ‘What the Reader is Writing’ (1969) 6 Monash Reporter 1. 88 Fleming (n 87). 89 Hargrave v Goldman (1963) 110 CLR 40 (HCA) 63. 90 Uren v John Fairfax & Sons Pty Ltd (1966) 117 CLR 118 (HCA) 149. In the context of a decision concerning exemplary damages in the law of tort. 91 Peek Frean (Australia) Pty Ltd v IBM Australia Pty Ltd [1966] 1 NSWLR 120 (NSWSC) 121.

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company’s auditor and the company’s accountant when the latter supplied incorrect information.92 Mutual Life & Citizens’ Assurance Co Ltd v Evatt,93 was the first Australian decision to consider Hedley Byrne in any detail. The plaintiff, a policyholder with the defendant, had sought advice from the defendant about the financial position of another company, which was a subsidiary of the defendant. The defendant informed the plaintiff that it was financially stable on the strength of which the plaintiff retained his investments in the company and made further investments. The advice was incorrect and the plaintiff lost money. Barwick CJ explained that in Australia this matter was ‘free of any binding authority’94 but Hedley Byrne was of ‘great assistance’.95 A majority of the High Court held that a duty was owed.96 Barwick CJ accepted that ‘the relationship of proximity’ was adequate for physical acts or omissions, but that where the injury was caused by words then the necessary relationship ‘needs be more specific’.97 To distinguish between physical injury and economic loss was described as ‘odd’.98 Where a relationship was ‘special’ then a duty of care arose.99 It was not ‘necessary or desirable’ to categorise the relationships which give rise to a duty of care but there were certain ‘essential elements’.100 In Barwick CJ’s view this came down to whether advice was given voluntarily in circumstances where the defendant realises or ought to realise the plaintiff will rely and the plaintiff does reasonably rely on the statement.101 Crucially, a special relationship did ‘not require either the actual possession of skill or judgment on the part of the speaker or any profession by him to possess the same’.102 The decision was appealed to the Privy Council. A majority held that there was no duty of care. The appeal succeeded because the defendant did not have, nor profess to have, a special skill in giving investment advice.103 Of the three Privy Council judges who had also sat in Hedley Byrne, only Lord Hodson sided with the majority. Lord Reid and Lord Morris dissented. Mutual Life & Citizens’ Assurance Co Ltd v Evatt placed a limit on the application of Hedley Byrne which was not necessarily justified by the decision itself104 and it would eventually be overturned. In the meantime Hedley Byrne would become central in developing liability for pure economic loss in Australia. 92 Dominion Freeholders Ltd v Aird, Spargo (1966) 67 SR (NSW) 150 (NSWCA) 157. Jacobs JA agreed at 157. Moffitt AJA did not decide the question at 159. 93 Mutual Life (n 36). On appeal from Evatt v Mutual Life & Citizens’ Assurance Co Ltd [1967] 2 NSWR 465 (NSWCA). 94 Mutual Life (n 36) 563. 95 ibid 565. 96 Barwick CJ, Kitto and Menzies JJ. Taylor and Owen JJ dissented. 97 Mutual Life (n 36) 566. 98 ibid 567. Though the example that Barwick CJ gives concerns economic loss parasitic on a physical injury rather than pure economic loss. 99 ibid 569. 100 ibid 571–74. 101 ibid 573. 102 ibid 574. 103 Mutual Life and Citizens’ Assurance Co Ltd v Evatt [1971] AC 793 (PC) 809. 104 Hedley Byrne (n 2) 531 (Lord Devlin).

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III. Caltex: Working Out the Principles Behind Pure Economic Loss Speaking in Hull v Canterbury Municipal Council in 1974, Nagle J, said that ‘It may not be inaccurate to remark, as lawyers do, that this branch of the law has been “clarified” of recent years, although the full measure of “clarification”, if this term is apposite, may not yet have been reached’.105 In holding that a statement made under a statutory duty might give rise to a claim in negligence,106 Hedley Byrne was presented as an application of the neighbour principle in Donoghue v Stevenson.107 This was certainly not how the House of Lords, in Hedley Byrne itself, saw matters, but it signalled the beginning of the drift of Hedley Byrne into the mainstream of negligence. Before long, the decision would stand as more than an authority on misstatement.108 This change is hugely significant. The issue of pure economic loss caused by conduct soon began to trouble the courts. After the failure of this sort of claim in French Knit Sales Pty Ltd v N Gold & Sons Pty Ltd,109 Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’,110 gave the High Court an opportunity to explore these questions. A dredger damaged an oil pipeline connecting an oil refinery and an oil terminal owned by the plaintiff. The pipeline was owned by Australian Oil Refining Pty Ltd. Refined oil carried through the pipeline was the property of the plaintiff but the risk of damage or loss lay with Australian Oil Refining Pty Ltd. The plaintiff incurred costs transporting the refined oil during the period that the pipe was damaged and sought to recover these from the defendant. Mason J observed hat ‘it was to be expected that the speeches in Hedley Byrne … would open the way to liability for pure economic damage sustained in consequence of negligent conduct’.111 Hedley Byrne played a crucial part in the reasoning of Justices Gibbs, Stephen and Mason. It was used to justify both liberating liability in negligence for pure economic loss and at the same time restricting it. Counsel for the defendant argued that Hedley Byrne was just an exception to the rule of no recovery for pure economic loss based on a negligent misstatement. Gibbs J held that such a limited interpretation would be ‘surprising’.112 It might, he said, lead to practical problems: ‘It is often not easy to decide whether a particular act of negligence can rightly be described as a negligent misstatement or as negligent conduct’.113

105

Hull v Canterbury Municipal Council [1974] 1 NSWLR 300 (NSWSC) 305–06. See also GJ Knight Holdings Pty Ltd v Warringah Shire Council [1975] 2 NSWLR 796 (NSWSC). 107 Hull (n 105) 308–09. 108 In 1970 it was still possible to think of Hedley Byrne merely as a misstatement case, see Higgins (n 87) 468–70. 109 French Knit Sales Pty Ltd v N Gold & Sons Pty Ltd [1972] 2 NSWLR 132 (NSWCA). 110 Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136 CLR 529 (HCA). 111 ibid 586. 112 ibid 552. 113 ibid 552. 106

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Despite the objections to recovery for pure economic loss,114 the High Court held that a duty of care was owed on the facts. Yet Hedley Byrne was used to justify placing a limit on that duty. Gibbs J observed that ‘It is important to notice that their Lordships did not simply place liability for negligent words on the same footing as liability for negligent acts’.115 Nor did the decision ‘obliterate’ the distinction between pecuniary and physical loss.116 Foreseeability was certainly insufficient. Rather according to Gibbs J, ‘there are exceptional cases in which the defendant has knowledge or means of knowledge that the plaintiff individually, and not merely as a member of am unascertained class, will be likely to suffer economic loss as a consequence of his negligence’.117 He also thought that it was material but not sufficient ‘that some property of the plaintiff was in physical proximity to the damaged property, or that the plaintiff, and the person whose property was injured, were engaged in a common adventure’.118 Gibbs J was thinking in terms of a rule of no recovery, to which exceptions could be created.119 Stephen J was less inclined to give ‘special status’ as such to pure economic loss120 but, relying on Lord Devlin in Hedley Byrne,121 thought that ‘proximity’ between the act and the damage was required.122 In cases of pure economic loss mere foreseeability was not enough.123 Sufficient proximity could be found on the facts.124 But unlike Lord Devlin, Stephen J saw liability as turning on the relationship between the act causing the loss and the damage. This is a matter of remoteness rather than an issue of duty.125 Mason J also held that foreseeability was insufficient on the basis of Hedley Byrne,126 and preferred something like the first limb of Gibbs J’s formulation.127 Jacob and Murphy JJ both advocated broader formulations for the duty of care and rejected a distinction between pure economic and other loss. Tellingly, neither referred to Hedley Byrne. Justice HH Glass would argue that Caltex ranks in importance with Hedley Byrne.128 The way in which the earlier decision was used was still problematic. The reasoning of the majority in Caltex compels them to accept a distinction between pure economic loss and physical injury. In the former case, it will be more difficult

114 These were mentioned at several points, ibid 551–52 (Gibbs J), 568 (Stephen J) but see also Murphy J, who appeared unconvinced by the reasons for limiting liability for pure economic loss, see ibid 606. 115 ibid 549. 116 ibid 550. 117 ibid 555. 118 ibid 555. 119 ibid 555. 120 ibid 572. 121 ibid 558. 122 ibid 574. 123 ibid 573. 124 ibid 576–77. 125 P Cane, ‘Recovery for Purely Economic Loss in Australia’ (1977) 93 LQR 333, 335. 126 Caltex (n 110) 590. 127 ibid 593. 128 ‘Duty to Avoid Economic Loss’ (1977) 51 Australian Law Journal 372, 384.

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to establish a duty of care. It is worth remembering that in Hedley Byrne most of the Law Lords did not afford the distinction much weight.129 Lord Hodson and Lord Devlin were unequivocal that such a distinction was without foundation.130 There is another difficulty. A general limitation on liability for pure economic loss was fashioned from Hedley Byrne while at the same time ignoring the fact that it was critical to the decision that the loss was caused by a statement.131 Even if Caltex ‘is plainly a terminus a quo’132 extracting a ratio is no easy task.133 It also marked the start of a divergence in the reasoning of the courts in relation to economic loss in Australia and England, which has never been bridged.134

IV. Pure Economic Loss, Hedley Byrne and the Rise of Proximity The fact that the statement in Shaddock & Associates Pty Ltd v The Council of the City of Parramatta (No 1)135 involved the provision of information rather than advice was insufficient to distinguish the facts from Hedley Byrne. The defendant also argued that, in the absence of special skill as required by the Privy Council in Mutual Life v Evatt, no duty was owed. Mason J, with whom Aickin J agreed, stressed that no special skill was required, preferring the view of the minority in the Privy Council.136 Gibbs CJ thought that the council did possess the necessary skill. Stephen J held that, as a local council, it was in a different position to a business or professional.137 The decision amounts to a further relaxation of liability for negligent misstatement but arguably a clear ratio is once again missing.138 Only Gibbs CJ appeared, in common with some members of the House of Lords in Hedley Byrne, to draw a clear distinction between words and deeds.139 The same judge along with his colleagues Mason, Wilson and Dawson JJ in a joint judgment discussed 129 See also Dutton v Bognor Regis Urban District Council [1972] 1 QB 373 (CA) 403 (Sachs LJ). For a contrary view, see PP Craig, ‘Negligent Misstatements, Negligent Acts and Economic Loss’ (1976) 92 LQR 213, 218–19. This article was actually referred to by Mason J on another point in Caltex (n 110) 593. 130 See the references at n 22. 131 Anns v Merton LBC [1978] AC 728 (HL) 769 (Lord Salmon). 132 Ross v Caunters [1980] Ch 297 (Ch) 320. 133 Candlewood Navigation Corp Ltd v Mitsui OSK Lines Ltd (The Mineral Transporter) [1986] AC 1 (PC) 22. 134 This is especially evident in cases of so-called relational economic loss. For an account, see K Barker, ‘Relational Economic Loss and Indeterminacy: The Search for Rational Limits’ in S Degeling, J Edelman and J Goudkamp (eds), Torts in Commercial Law (Sydney, Lawbook Company, 2011) 163. 135 Shaddock & Associates Pty Ltd v The Council of the City of Parramatta (No 1) (1981) 150 CLR 225 (HCA). 136 As Mason J pointed out, the High Court were no longer bound by the Privy Council, ibid 248. 137 ibid, 243, it was the ‘exclusive possessor of essential information’. 138 M Davies, ‘Special Skill in Negligent Misstatement’ (1989–1990) 17 Melbourne University Law Review 484, who argues that Murphy J sides with Mason and Aickin JJ. 139 Shaddock (n 135) 231 ‘there are obvious differences’.

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these differences at greater length in San Sebastian Pty Ltd v The Minister,140 and yet still concluded that ‘the treatment of the duty of care in the context of misstatements is but an instance of the application of the principles governing the duty of care in negligence generally’.141 It is said that proximity was ‘an integral constituent of the duty of care concept’.142 At the same time it was suggested that in cases of negligent misstatement ‘reliance plays a prominent part’,143 whereas outside negligent misstatement reliance ‘may not be present’.144 The process of working out the limits of liability for negligent misstatements ‘remained complex and detailed’.145 Outside of negligent misstatements, Hedley Byrne largely disappeared in England in the decade post Anns v London Merton London Borough.146 In Anns, Hedley Byrne was, contrary to what was said there, treated as a direct descendant of Donoghue v Stevenson. As a result it was justified by Lord Wilberforce’s two-stage test.147 In The Mineral Transporter the Privy Council came to the conclusion that Anns represented the law in Australia as well.148 This was not so. In Sutherland Shire Council v Heyman, Gibbs CJ would describe Anns as a decision of ‘great significance’149 but, as in Caltex, he stressed that ‘foreseeability’ of injury was not enough to found a duty in a novel situation. Something more was needed. That something more was found in the notion of proximity.150 Deane J justified the requirement of proximity on the basis of Lord Devlin’s speech in Hedley Byrne151 and stated that it could be demonstrated by showing either an ‘assumption of responsibility’ or ‘reliance’.152 Deane J supported the idea of proximity in other contexts;153 sometimes, although not always, with reference to Lord Devlin in Hedley Byrne.154 When Brennan J criticised the ‘extended’ use of proximity155 he was referring to the way that proximity was treated as ‘a unifying theme’ which explains

140

San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 (HCA) 353–54. ibid 354. 142 ibid 355. 143 ibid. 144 ibid. 145 Jaensch v Coffey (1984) 155 CLR 549 (HCA) 554 (Gibbs CJ). 146 Anns (n 131). It did not entirely disappear in this context: Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384 (Ch); Ross (n 132). The decision was also used to provide ex-post facto rationalisation for Junior Books (n 20): see Murphy (n 20) 481 (Lord Bridge). 147 Anns (n 131) 751–52. 148 Candlewood (n 133) 20. Even in England, there were already attempts to limit the decision by this time: Peabody Donation Fund v Sir Lindsay Parkinson & Co Ltd [1985] AC 210 (HL) 240 (Lord Keith); Leigh and Sillivan Ltd v Aliakmon Shipping [1986] AC 785 (PC) 815 (Lord Brandon). 149 Sutherland Shire Council v Heyman (1985) 157 CLR 424 (HCA) 437. 150 ibid 440–41 (Gibbs CJ), 496–98 (Deane J). Wilson J agreed with Gibbs CJ at 471. Mason J at 464 preferred to stress ‘general reliance’. Brennan J favoured an incrementalist approach: see 481. 151 ibid 496. 152 ibid 498. 153 Jaensch (n 145) 583–85. 154 ibid 583. But contrast Stevens v Brodribb Sawmilling Pty Ltd (1986) 160 CLR 16 (HCA) 51, where Hedley Byrne was not mentioned. 155 Gala v Preston (1991) 172 CLR 243 (HCA) 259–61. 141

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the imposition of a duty of care.156 It is difficult to argue that proximity was used in this sense by Lord Devlin. At best, the term was probably intended to do no more than indicate that reasonable foreseeability was not enough.157 In England, Hedley Byrne has been variously explained by the House of Lords on the basis of reliance,158 proximity159 the assumption of responsibility160 and a relationship ‘akin to contract’.161 That these may be no more than ‘convenient labels’162 perhaps matters less if the law of negligence is to truly develop incrementally from existing categories. Incrementalism of this kind, which restricts developments in novel cases to cautious development from an existing authority, has found some support in Australia.163 It has also been criticised.164 Yet the importance of earlier decisions in novel cases continues to be recognised in the new multifactoral approach to the duty of care.165 Incrementalism does not necessarily promote certainty. In England, it would have been perfectly possible for the House of Lords in Caparo Industries Plc v Dickman to have agreed with the majority in the Court of Appeal, remained consistent with Hedley Byrne, and yet still to have found that a duty was owed.166 The paradox of Hedley Byrne is that, having been used to extend the scope of negligence for pure economic loss, it was, for a time at least, used to restrict it.167 The late 1980s was a period of retrenchment of pure economic loss in England. By the mid-1990s more exceptions to the no-liability rule for pure economic loss were been created concerning the provision of services.168 Hedley Byrne, through the medium of ‘assumption of responsibility’, played a crucial part in the reasoning of Lord Goff in particular.169 The scope of liability for pure economic loss in 156

Stevens (n 154) 52 (Deane J). For this narrower use, see Hill v Van Erp (1997) 188 CLR 159 (HCA) 177–78 (Dawson J). 158 D & F Estates Ltd v Church Commissioners [1989] 1 AC 177 (HL) 215 (Lord Oliver); Murphy (n 20) 468 (Lord Keith) 483 (Lord Oliver). 159 Murphy (n 20) 480 (Lord Bridge), who mentions both proximity and reliance. 160 Yuen Kun Yeu v Attorney-General of Hong Kong [1988] 1 AC 175 (PC) 196, but for criticism of the concept see Smith v Eric S Bush [1990] 1 AC 831 (HL) 862 (Lord Griffiths); Murphy (n 20) 486 (Lord Oliver). 161 Smith v Bush (n 160) 846 (Lord Templeman). 162 Caparo Industries Plc v Dickman [1990] 2 AC 605 (HL) 628 (Lord Roskill), 637 (Lord Oliver). For academic criticism of assumption of responsibility and reliance, see K Barker, ‘Unreliable Assumptions in the Modern Law of Negligence’ (1993) 109 LQR 461. 163 For an early statement in favour of incrementalism, see Sutherland (n 149) 481 (Brennan J). For an attempt to reconcile incrementalism with proximity, see Hill v Van Erp (n 157) 178–79. 164 Perre v Apand Pty Ltd (1999) 198 CLR 180 (HCA) 253–54 (Gummow J). 165 ibid 217 (McHugh J). 166 Caparo Industries Plc v Dickman [1989] QB 653 (CA). 167 One of the problems with the English approach is that it is intellectually incoherent: J Stapleton, ‘Duty of Care and Economic Loss: A Wider Agenda’ (1991) 107 LQR 249, ‘Duty of Care: Peripheral Parties and Alternative Opportunities for Deterrence’ (1995) 111 LQR 301. 168 N McBride and A Hughes, ‘Hedley Byrne in the House of Lords: An Interpretation’ (1995) 15 Legal Studies 376. For an earlier attempt to derive a wider principle from Hedley Byrne, see Junior Books (n 20) 546 (Lord Roskill). 169 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL); White v Jones (n 25); Spring v Guardian Assurance plc [1995] 2 AC 296 (HL). But see Lord Mustill’s powerful dissent in White v Jones (n 25) 287, in which he denied that the relationship between the solicitor and the disappointed beneficiary was like the one in Hedley Byrne. 157

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England was extended, but left the English courts struggling to reconcile the new wider Hedley Byrne approach170 with Caparo.171 The Australian courts avoided these difficulties because, after Caltex, there was no exclusionary rule. As a result, Hedley Byrne became an important authority beyond the confines of negligent misstatements at a much earlier point in time.172 As in England, because pure economic loss remains ‘special’,173 Hedley Byrne is still at the heart of things. Even in the ‘core’ case of misstatements the decision has proved useful to those advancing a variety of different and even contradictory propositions. In Esanda Finance Corporation Ltd v Peat Marwick Hungerfords,174 the High Court rejected a claim in negligence by a finance company which had relied on an auditor’s report. The result was consistent with Caparo. Once again, Hedley Byrne was evident in the High Court’s reasoning. Having referred to Lord Morris in Hedley Byrne,175 Brennan CJ stressed the absence of reasonable reliance.176 Dawson J emphasised the absence of proximity177 but appeared to consider some of the same factors.178 Toohey and Gaudron JJ discussed both reliance and the assumption of responsibility but concluded that ‘they do not, of themselves, reveal the precise nature of the situations or categories of situation which involve a special relationship of proximity’.179 McHugh J delivered the most sophisticated judgment. He considered six factors in relation to the existence of a duty.180 While none of these were decisive, collectively they pointed to a finding of no duty.181 He concluded that: In the end, the most powerful point for holding that auditors owe a duty of care in cases like the present is that investors and creditors suffer their losses because they have relied, as the auditor knew or ought reasonably to have known they would, on his or her report, and the auditor has made that report carelessly. As against that, however, is the fact that the auditor did not invite or intend them to rely on it and they have paid nothing to the auditor for the preparation of the work. They require the auditor to compensate them for the loss that arose from their self-induced reliance, but they were not prepared to pay for the auditor’s work.182

170

Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) 834. These difficulties were much in evidence in Merrett v Babb [2001] QB 1174 (CA); Customs and Excise Commissioners v Barclays Bank Plc [2007] 1 AC 181 (HL). 172 Hill v Van Erp (n 157) 169–70 (Brennan J). 173 Bryan v Maloney (1995) 182 CLR 609 (HCA) 619 (Mason CJ, Deane J, Gaudron J). 174 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 (HCA). 175 ibid 249. 176 Factors going to this were discussed ibid 252. 177 ibid 258. 178 ibid 257. In this passage he refers both to reliance and assumption of responsibility. 179 ibid 264. 180 ibid 282–89. 181 ibid 289. 182 ibid 289. 171

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McHugh J added that the demands of corrective justice did not require the imposition of a duty.183 Gummow J disposed of the appeal on the more limited grounds that the pleadings were deficient184 and suggested that terms such as ‘assumption of responsibility’ ‘reliance’ and ‘intention to induce activity’, while imprecise, ‘in a real sense reflect … the quest for an alternative to consideration’.185 This seems to hint that liability in a case like Hedley Byrne is based on some notion of consent186 as captured by the phrase ‘akin to contract’.187 This analysis has not been much discussed in Australia, but when a contract between a mortgage lender and valuer provided that the valuation ‘may’ be relied on by a mortgage insurer, then it was held that the valuer owed the insurer a duty of care when the property was overvalued. The relationship between the valuer and the insurer was said to be ‘akin to contract’.188 In Hedley Byrne it was consideration that was missing. The plaintiffs here ran into the problem of privity.189 Although it was sometimes criticised, proximity190 remained, for a while, a popular way of determining the existence of a duty of care in novel situations.191 Typically as in Esanda, ‘assumption of responsibility’ was a factor along with others such as reliance in establishing proximity and not as in England a freestanding ground for determining the existence of a duty of care.192 Proximity still has supporters.193 Over time judges began to downplay what the concept could achieve194 and it has now been supplanted.195

183 ibid 289. For the seminal statement on corrective justice, see EJ Weinrib, The Idea of Private Law (Cambridge, Mass., Harvard University Press, 1995). 184 Esanda (n 174) 310. 185 ibid 299. 186 This has been presented as an alternative to negligence-based liability. For a sophisticated analysis of this viewpoint, see A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing, 2007) 273–319. 187 With respect, this phrase is totally unhelpful. Something is either a contract or it isn’t. It should be remembered that the doctrine of consideration is, and always has been, relatively easy to manipulate. De La Bere v Pearson [1908] 1 KB 280 (CA) provides an example in a case of negligent advice. 188 Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 (HCA) 434 (McHugh J), 446 (Gummow J). 189 The current state of the common law doctrine of privity in Australia remains uncertain: Trident General Insurance Co Ltd v McNiece Bros Pty Ltd (1988) 165 CLR 107 (HCA). There are a series of major statutory exceptions. 190 Notably by Brennan J: San Sebastian Pty Ltd (n 140) 368; Hawkins v Clayton (1988) 164 CLR 539 (HCA) 555; Bryan v Maloney (n 173) 653–55. 191 Examples in the High Court not already mentioned include: Gala v Preston (1991) 172 CLR 243 (HCA) 252–54 (Mason CJ, Deane, Gaudron, McHugh JJ); Cook v Cook (1986) 162 CLR 376 (HCA) 387 (Mason, Wilson, Deane, Dawson JJ); Bernie Port Authority v General Jones Pty Ltd (1994) 179 CLR 520 (HCA) 542–43 (Mason CJ, Deane, Dawson, Toohey and Gaudron JJ). 192 For another example, see Hawkins v Clayton (1988) 164 CLR 539 (HCA) 578 (Deane J). 193 For a stout defence of the ‘Caparo test’, see C Witting, ‘Duty of Care: An Analytical Approach’ (2005) 25 OJLS 33. The ‘Anns test’, albeit in a reworked version, also has defenders: A Robertson, ‘Justice, Community Welfare and the Duty of Care’ (2011) 127 LQR 370. 194 Examples can be found in Hill v Van Erp (n 157) 177–78 (Dawson J), 189 (Toohey J), 210–11 (McHugh J), 237–38 (Gummow J). 195 Pyrenees Shire Council v Day (1998) 192 CLR 330 (HCA) 414; Sullivan v Moody (2001) 207 CLR 562 (HCA) 578.

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V. A Multifactoral Approach and Hedley Byrne During the last decade or so, within the established category of negligent misstatements, the High Court has continued to emphasise the same sort of factors which appealed to Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt.196 This has seen an emphasis on the idea of reliance, which appealed to the majority in Hedley Byrne, rather than the ‘assumption of responsibility’ or ‘akin to contract’ rationale, which found favour with Lord Devlin.197 Novel cases continue to cause problems. The starting point for determining the existence of a duty of care is whether a duty has been found on the same facts before. Where the case is novel there is still room to reason by analogy. As has been explained by McHugh J: But that does not mean that duties in novel cases are determined by simply looking for factual similarities in decided cases or that neither principle nor policy has any part to play in the development of the law in this area. On the contrary, the precedent cases have to be examined to reveal their bases in principle and policy.198

McHugh J was keen to limit the principles or policies that could be considered ‘by reference to a limited number of principles capable of application throughout the category’.199 Where no analogous case can be found, instead of looking at the principles derived from a specific analogy, then it is necessary to look at principles of general application within that particular category, for example by looking at other cases of pure economic loss.200 Rather than ‘high-level abstraction’, the multifactoral approach favours ‘lower-level ideas’ which are ‘closer to the operative policy concerns driving judicial decisions’.201 Perre v Apand Pty Ltd202 considered, at some length, the correct approach to use when determining recovery for pure economic loss in novel cases. Even accepting that some of the relevant factors identified by the different Justices were the same or similar, there was little consensus on the analytical framework within which those factors might be considered.203 Hedley Byrne was liberally referred to. Once more, there were some differences in emphasis. Kirby J argued that Hedley Byrne ‘dealt a fatal blow (doubtless unintended)’ to the rule excluding liability for pure economic loss.204 His preferred approach was similar to that adopted by the

196

Mutual Life (n 36) 569–74. Tepko Pty Ltd v Water Board (2001) 206 CLR 1 (HCA) 16–18 (Gleeson CJ, Gummow and Hayne JJ). Contrast Gaudron J who fails to distinguish the two approaches at 22–26 198 Crimmins v Stevedore Industry Finance Committee (1999) 200 CLR 1 (HCA) 33. 199 ibid 34. 200 ibid 34. 201 K Barker, ‘Economic Loss and the Duty of Care: a Study in the Exercise of Legal Justification’ in C Rickett (ed), Justifying Private Law Remedies (Oxford, Hart Publishing, 2008) 175, 198–99. 202 Perre v Apand (n 164). 203 C Witting, ‘The Three Stage Test Abandoned in Australia—or Not?’ (2002) 118 LQR 214, 215. 204 Perre v Apand (n 164) 268. 197

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House of Lords in Caparo. McHugh J, who was critical of the proposal to mimic Caparo,205 noted that ‘Denial of recovery remains the rule, but, since Hedley Byrne, was decided in 1963 many exceptions to the rule have been recognised’.206 The starting point was whether the case came within an established category. Where there was no analogous authority, then it was necessary to look at principles of general application.207 He listed five principles that were always relevant in cases of pure economic loss, ‘reasonable foreseeability of loss, indeterminacy of liability, autonomy of the individual, vulnerability to risk and the defendant’s knowledge of the risk and its magnitude’.208 If McHugh J is correct and ‘denial of recovery remains the rule’—at various points in the last 50 years in Australia that statement has been open to challenge— then the multifactoral approach is just as capable of supporting a conservative approach towards the duty of care in pure economic loss as an expansionist one. Were Hedley Byrne to be decided as a novel case today, the ‘without responsibility’ clause might mitigate against a finding of duty on the basis that the parties in exercising their autonomy had agreed on the clause. This result is consistent with the actual decision. Had the clause been absent, then what? It is difficult to argue that the loss suffered there was not reasonably foreseeable, or that liability was indeterminate.209 On the other hand, it is hard to characterise the plaintiff in Hedley Byrne as ‘vulnerable’.210 They might have made contractual provision for the information and paid for the privilege.211 They were a commercial party.212 On the facts, the defendants seem to have appreciated the risk and its magnitude and for this reason to have imposed the no-responsibility clause. It is difficult to be completely sure 50 years on whether the High Court of Australia would be prepared to find a duty of care if they were required to determine a case like Hedley Byrne de novo.213 It has recently been said that ‘The multi-factorial (sic) approach should not … be treated as a shopping list, all the items of which must have application in a particular case. Rather, it provides a list of considerations which should

205

ibid 210–12. ibid 209. 207 ibid 217. 208 ibid 220. 209 By which McHugh J meant ‘liability is only indeterminate if it cannot be realistically calculated’: ibid 221. 210 This seems to come down to whether the plaintiff could have done anything to avoid the pure economic loss. It is arguable that the plaintiff in Hedley Byrne was vulnerable in that sense however the same could be said of the plaintiff in Barclay v Penberthy (2012) 246 CLR 258 (HCA) and yet the High Court held a duty of care was owed. I am grateful to Professor Jane Stapleton for drawing this example to my attention. 211 Perre v Apand (n 164) 226. 212 J Stapleton, ‘Comparative Economic Loss: Lessons from Case-law-focused “Middle Theory”’ (2002–2003) 50 UCLA Law Review 531, 559. 213 Which of course is not to say that such a case might not fall under Australian Consumer Law 2010 as discussed by Bant and Patterson (Chapter 7). 206

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be considered, as potentially relevant’.214 The list of those ‘salient features’ which are potentially relevant has grown.215 Brennan CJ writing extra-judicially has said that ‘Perhaps the greatest impetus for development in the modern law of torts came with the judgment of the House of Lords in Hedley Byrne’.216 The impact of Hedley Byrne in Australia has been felt beyond the confines of negligent misstatement. It helped to clear the way for the recovery of pure economic loss. The decision has continued to appear in the deliberations of the High Court ever since. In more recent times it has probably had less obvious impact than in England for the simple reason that it has proved unnecessary to devise an extended Hedley Byrne category. And perhaps in this sense at least, however unsatisfactory it may in some ways appear to be, the law in Australia relating to pure economic loss has reached a stage of evolution not yet seen in England.

214

Caltex Refineries (Qld) Pty Limited v Stavar [2009] NSWCA 258 [172] (Basten JA). ibid [103] (Allsop P): 16 were listed and it was stated that this was not an exhaustive list. 216 Sir Gerard Brennan, ‘Foreword’, N Mullany (ed), Torts in the Nineties (Sydney, Law Book Company, 1997) v. 215

3 The Assumption of Responsibility ANDREW ROBERTSON AND JULIA WANG*

In addition to being a watershed case with respect to liability for negligent misstatement and the negligent infliction of pure economic loss, Hedley Byrne & Co Ltd v Heller & Partners Ltd1 is significant for its revival of the idea of the assumption of responsibility as the foundation for a duty of care in the law of negligence.2 While the assumption of responsibility has deep historical roots,3 Hedley Byrne ushered in a focus on the concept which has been and continues to be enormously influential. The assumption of responsibility plays a central role in liability for pure economic loss, liability for omissions and at least some non-delegable duties of care. Its role in establishing duties of care not to cause economic loss, duties of positive action and non-delegable duties is so significant that, in all three areas, it is sometimes considered to be the exclusive pathway to establishing the relevant duty.4 Duties arising from assumptions of responsibility are considered in some instances not to be affected by policy considerations that would bar the recognition of ordinary duties of care.5 The appeal and potential reach of the concept are illustrated

*

Thanks are due to Kit Barker and Robert Stevens for their helpful comments on an earlier draft. Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) (‘Hedley Byrne’). 2 See P Mitchell, ‘Hedley Byrne & Co Ltd v Heller & Partners Ltd’ in C Mitchell and P Mitchell (eds), Landmark Cases in the Law of Tort (Oxford, Hart Publishing, 2010) 171–97. 3 ibid and P Winfield, ‘Duty in Tortious Negligence’ (1934) 34 Columbia Law Review 41. 4 This may be seen as a particular instance of the broader approach to omissions, but it has also been said that, for a duty to safeguard a person from the criminal actions of a third party to arise, there must be something more than foreseeability of harm: ‘In essence, there must be some particular reason why X should be held to have assumed the responsibility for protecting Y from harm caused by the criminal acts of Z’: Mitchell v Glasgow City Council [2009] UKHL 11, [2009] 1 AC 874 [76] (Baroness Hale). 5 First, an assumption of responsibility will provide a basis, perhaps the exclusive basis, for a duty of care owed by police to a potential victim of crime: see Swinney v Chief Constable of Northumbria Police Force [1997] QB 464 (‘Swinney’); Costello v Chief Constable of the Northumbria Police [1999] 1 All ER 550 (CA) (‘Costello’); Van Colle v Chief Constable of the Hertfordshire Police [2008] UKHL 50, [2009] 1 AC 225 [60] (Lord Bingham), [119]–[135] (Lord Brown). Secondly, Lord Goff said in Spring v Guardian Assurance plc [1995] 2 AC 296 (HL) (‘Spring’) 316–17 that there can be liability under the Hedley Byrne principle in circumstances where an ordinary action in negligence would undermine the policy established by the qualified privilege defence in the law of defamation. Lord Goff ’s view was, however, contradicted by the reasoning of Lord Lowry, Lord Slynn and Lord Woolf in that case, all of whom found a duty of care arising on ordinary principles. 1

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by the fact that it has been maintained in both the Court of Appeal6 and the House of Lords7 that even the duty of care owed by a motorist to other road users is based on an assumption of responsibility. A remarkably full and rich half-century of case law on the assumption of responsibility since Hedley Byrne has yielded a wealth of fact situations and analysis, but has left unresolved fundamental questions about the nature of the concept. The most basic question is whether we are concerned here with obligations that are self-imposed, or obligations that are imposed by the law. The speeches in Hedley Byrne exhibit an ambivalence on that question which has haunted the field ever since. If the obligations are not self-imposed or consensual then what, if anything, is distinctive about the assumption of responsibility as a basis of obligation? The strong association the concept has with more onerous duties (not to cause economic loss; to take positive protective action; and to ensure that care is taken by delegates) suggests that there might be something distinctive about the assumption of responsibility, but if it is not that the obligation is voluntarily created or adopted by the person by whom it is owed, then it is not easy to identify what it might be. This chapter will first consider the different conceptions of assumption of responsibility that emerged from Hedley Byrne: one focused on the idea of a voluntarily assumed duty, the other on the assumption of responsibility as simply a particular instance of neighbourhood or proximity. The second section of the chapter will explain why the idea of a voluntarily assumed duty does not fit with the case law. In the third section we will explore the idea that, even if the obligations in question cannot be understood as voluntary, they may nevertheless be regarded as distinctive because the defendant has willingly entered into a relationship with the claimant in which it can reasonably be expected that the defendant will be mindful of the claimant’s interests. We will see that that model, too, is difficult to reconcile with the case law, and shades into a more general conception of proximity.8 The fourth and final section explores the relevant indicia of proximity in a number of situations that are commonly treated as falling within the assumption of responsibility principle. Analysis of these fact situations sheds light on the nature of the obligation in question and on the circumstances in which it arises.

6 Costello (n 5) 557 (May LJ): ‘By driving a motor car on the road, a motorist assumes responsibility to others to drive it with reasonable care’. 7 In White v Jones [1995] 2 AC 207 (HL) 293–94 Lord Nolan suggested that by driving on a highway ‘a motorist implicitly assumes a responsibility to other road users and they in turn rely on him to discharge that responsibility. By taking his car out on the road, he holds himself out as a reasonably careful driver’. 8 On the idea that the assumption of responsibility should be understood as a manifestation of proximity, see also C Witting, Liability for Negligent Misstatements (Oxford, Oxford University Press, 2004), esp chs 8, 9 and 11; J Murphy and C Witting, Street on Torts, 13th edn (Oxford, Oxford University Press, 2012) 52; and Christian Witting’s contribution to this volume (Chapter 9). See also Anwar v Ng Chong & Hue LLC [2014] SGCA 34, [2014] 3 SLR 761 [190] (assumption of responsibility is not a test in and of itself, but merely a factor to be considered in determining whether there is sufficient proximity).

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I. The Assumption of Responsibility in Hedley Byrne The speeches in Hedley Byrne recognise that a duty can arise in giving information or advice, but offer two different explanations as to the basis of that duty: first, that it is a voluntarily assumed obligation and, secondly, that it is simply a manifestation of the neighbourhood principle underlying all duties of care recognised by the law of negligence. The appellant advertising agents extended credit to a customer in reliance on a favourable reference given by the respondent bankers. The reference was obtained through the appellant’s own bankers, and was given gratuitously and ‘without responsibility’ on the part of the respondents. The House of Lords unanimously held that a duty of care could in certain circumstances be owed with respect to the giving of information or advice, but was not owed in the circumstances of the case.9 It is sometimes said that, apart from the disclaimer, a majority would have held the bank liable,10 but this is clearly incorrect.11 Lord Hodson considered that no duty would have arisen even in the absence of the disclaimer12 and Lord Morris said there was much to be said for that view.13 Lord Reid regarded this as an ‘unusually difficult’ question, which he did not answer.14 Lord Devlin also left the question open. He considered that a banker giving a reference could owe a duty, but it would be necessary to consider whether the reference was intended to be passed on to the customer, a question he did not resolve here.15 Lord Pearce may have been willing to recognise a duty in the absence of the disclaimer, but did not express a clear view.16 Ambivalence as to whether the obligation in question is assumed or imposed is evident in the reasons given by Lord Morris and Lord Hodson for considering 9 Hedley Byrne (n 1) 492–93 (Lord Reid), 504 (Lord Morris), 511 (Lord Hodson), 533 (Lord Devlin), 539–40 (Lord Pearce). 10 eg Smith v Eric S Bush [1990] 1 AC 831, 845 (Lord Templeman) (‘Smith v Bush’); White v Jones (n 7) 272 (Lord Browne-Wilkinson); Spring (n 5) 317 (Lord Goff). 11 See also Mitchell (n 2) 177. 12 Hedley Byrne (n 1) 512–13. 13 ibid 504. 14 Lord Reid noted (ibid 489) that it cannot be easy for a banker to reconcile his duty to his customer with his desire to give a balanced reply, and that a full objective statement of opinion cannot be expected by the inquirer. ‘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 an adequate disclaimer of responsibility or other warning’. 15 ibid 532–33. Lord Devlin noted (ibid 533) the submissions of counsel for the respondents: first, that the respondents did not know the reference was for the use of a customer; secondly, that even if they did, they did not know that the reference was intended to be passed on to the customer; and, thirdly, that the reference was intended at most ‘only as material upon which the customer’s bank could advise the customer on its own responsibility’. He then said: ‘I should consider it necessary to examine these contentions were it not for the general disclaimer of responsibility which appears to me to be in any event conclusive’. Lord Reid explicitly (ibid 482) and Lord Morris implicitly (ibid 493–94) rejected those contentions of counsel. 16 ibid 539–40.

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that a duty of care would not have arisen, even in the absence of a disclaimer. Without deciding the matter, Lord Morris said there was much to be said for the view that a banker giving a brief reference in relation to credit worthiness ‘does not accept, and there is not expected from him, any higher duty than that of giving an honest answer’.17 Lord Hodson agreed with the observation of Pearson LJ in the Court of Appeal that ‘it would not be reasonable to impose on a banker the obligation suggested’. That was because it would be ‘wholly unreasonable’ to expect a banker to take the time and trouble to search records, study documents and produce ‘a well-balanced and well-rounded report’.18 It would, Lord Hodson concluded, be ‘unreasonable to impose’ on persons such as bankers who are asked to give references a burden greater than that of giving an honest answer.19 Of course the speeches in Hedley Byrne were focused primarily on the questions of whether and when a duty of care might arise in relation to the giving of information or advice. Lord Reid observed that a person who is asked for information or advice and knows that his skill and judgement is being relied upon has three courses open to him: stay silent, answer with a disclaimer, or simply answer without 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 inquirer which requires him to exercise such care as the circumstances require.20

According to Lord Reid, therefore, a person who chooses to give information or advice in relevant circumstances without a disclaimer of responsibility must be held either to have accepted responsibility ‘for his answer being given carefully’ or to have accepted a relationship with the inquirer which requires him to exercise care. Nevertheless, for Lord Reid, the crucial question in determining whether a duty of care is owed in making a statement of fact or opinion is whether ‘expressly or by implication from the circumstances the speaker or writer has undertaken some responsibility’.21 He later said that ‘in this case the question is whether an undertaking to assume a duty to take care can be inferred’.22 Lord Reid considered that the appeal must be dismissed because the respondents did not do so.23 Lord Morris held that ‘if A assumes a responsibility to B to tender him deliberate advice, there could be liability if the advice is negligently given’.24 Interestingly, he used the word ‘could’ because ‘the ordinary courtesies and exchanges of life would become impossible if it were sought to attach legal obligation to every kindly 17

ibid 504 (emphasis added). ibid 513 (emphasis added). 19 ibid (emphasis added). 20 ibid 486. 21 ibid 483 (emphasis added). It should also be noted that Lord Reid (ibid 482) specifically held that Donoghue v Stevenson [1932] AC 562 (HL) could have no bearing on this case because ‘the law must treat negligent words differently from negligent acts’. 22 Hedley Byrne (n 1) 492 (emphasis added). 23 ibid 493. 24 ibid 494 (emphasis added). 18

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and friendly act’.25 The effect of the principle is that a professional such as an accountant, solicitor or doctor engaged for reward to give advice can be liable for damages if the advice is given negligently. But, Lord Morris said, the same principle may apply without a contract or formal engagement. He said that a doctor who proceeds to treat an unconscious stranger in an emergency is bound to exercise ‘all the professional skill he possessed, or professed to possess’.26 The relevant principle is that a duty of care will arise where a person who possesses special skill undertakes to apply that skill for the assistance of another person, who relies on it. More particularly, in relation to the giving of information or advice: [I]f 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.27

Lord Hodson agreed with that statement of principle, and noted that in this case the ‘appellants depend on the existence of a duty said to be assumed by or imposed on the respondents when they gave a reference’.28 That Lord Hodson saw liability for negligent misstatement as a manifestation of proximity can clearly be seen in the passage in which he equated physical injury arising from an incorrect label on a bottle ‘and a negligent compounding of ingredients which leads to the same result’.29 The fact that proximity is more difficult to establish in the case of words than other actions is, he said, a matter of proof rather than principle.30 Most tellingly, as noted above, Lord Hodson expressed the view that, even in the absence of a disclaimer, persons such as bankers giving credit references owe no duty of care because it would not be reasonable to impose such a burden on them.31 Lord Devlin observed that he did not understand any of their Lordships in the case to hold that it is a responsibility imposed by law.32 Rather, he said, ‘It is a responsibility that is voluntarily accepted or undertaken’ either where a general relationship such as solicitor and client is created, or in relation to a particular transaction.33 In the latter case, responsibility attaches to an act ‘only if the doing of that act implied a voluntary undertaking to assume responsibility’.34 He did, however, go on to say that he regarded this proposition as ‘an application of the general conception of proximity’,35 which he had earlier defined as the principle 25 ibid. On this view, one could in some circumstances assume responsibility without a legal obligation attaching. See also Chaudhry v Prabhakar [1989] 1 WLR 29, discussed below at n 76. 26 Hedley Byrne (n 1) 495, quoting Banbury v Bank of Montreal [1918] AC 626, 689 (Lord Atkinson). 27 Hedley Byrne (n 1) 503. 28 ibid 505 (emphasis added). 29 ibid 508. 30 ibid 510. 31 ibid 513. 32 ibid 529. 33 ibid. 34 ibid. 35 ibid 530.

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that one owes a duty to take care to avoid acts or omissions foreseeably likely to injure a person who ‘is so closely and directly affected by your act that you ought reasonably to have him in contemplation as being so affected when you are directing your mind to the acts or omissions which are called in question’.36 Lord Pearce’s speech also vacillated between treating the obligation in question as assumed and treating it as imposed, though his analysis strongly favoured the latter position. Lord Pearce cited cases in which it was recognised that duties of care might be owed by: a gratuitous bailee with special skill,37 a surgeon employed by someone other than the patient38 and a person who gratuitously undertook to effect insurance on account of another.39 Lord Pearce observed that the principle recognised in these cases is that ‘if persons holding themselves out in a calling or situation or profession take on a task within that calling or situation or profession, they have a duty of skill and care’.40 This principle applies equally to act and word and to physical and economic loss,41 and can be explained on the basis that such persons are ‘in particularly close proximity to those who, as they know, are relying on their skill and care although the proximity is not contractual’.42 Lord Pearce considered that the ambit of the duty of care in negligence ‘depends ultimately upon the courts’ assessment of the demands of society for protection from the carelessness of others’.43 The crucial question here was whether there was ‘such a special relationship in the present case as to impose on the defendants a duty of care to the plaintiffs’ and the answer to that question depends on the circumstances of the transaction, including ‘the gravity of the inquiry and the importance and influence attached to the answer’.44 ‘To import such a duty the representation must normally, I think, concern a business or professional transaction whose nature makes clear the gravity of the inquiry and the importance and influence attached to the answer’.45 Lord Pearce did observe that in the case of a casual social inquiry, ‘no such special relationship or duty of care would be assumed’46 and where, as here, both parties say expressly that there shall be no liability, that ‘I do not find it possible to say that a liability was assumed’.47

36

ibid 524. Shiells v Blackburne (1789) 1 H Bl 158, 126 ER 94. 38 Gladwell v Steggall (1839) 5 Bing NC 733, 132 ER 1283. 39 Wilkinson v Coverdale (1801) 1 Esp 75, 170 ER 284. 40 Hedley Byrne (n 1) 538. 41 Lord Pearce observed that there is some divergence between the law of negligence in word and that in act (because words are more volatile, ‘travel fast and far afield’ and ‘are used without being expended’) and that proximity is more difficult to establish in the case of words, but noted that, in the undertaking cases he cited, ‘there was no dichotomy between negligence in act and in word, nor between physical and economic loss’ (ibid 534, 538). 42 ibid 538. 43 ibid 536. 44 ibid 539. 45 ibid. 46 ibid (emphasis added). 47 ibid 540 (emphasis added). 37

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In summary, while ambivalence on the issue ran through all of the speeches, Lord Reid and Lord Devlin leaned towards the idea that the obligation in question was assumed. By contrast, Lord Morris, Lord Hodson and Lord Pearce leaned towards the idea that the obligation in question was imposed on the basis of the interactions between the parties and was not founded simply on an express or implied undertaking.

II. Is the Obligation Voluntarily Assumed? As noted above, Lord Devlin stated categorically in Hedley Byrne that the ‘responsibility’ in question ‘is a responsibility that is voluntarily accepted or undertaken’ and that he did not understand any of their Lordships ‘to hold that it is a responsibility imposed by law upon certain types of persons or in certain sorts of situations’.48 If this is correct, then an obligation arising from an assumption of responsibility is an entirely different class of obligation from the ordinary duty of care recognised by the law of negligence, which is imposed by law on the basis that the person who owes the duty is engaging in conduct that so closely and directly affects others that care can reasonably be expected. A core question, then, is whether the duties arising from assumptions of responsibility can properly be said to be voluntarily created in the sense that the defendant has consented to the obligation.49

A. Rights and Undertakings Scholars propounding a rights-based understanding of the law of obligations have enthusiastically embraced Lord Devlin’s idea that the assumption of responsibility gives rise to a consent-based or voluntarily assumed obligation.50 Indeed, the distinctiveness of the assumption of responsibility is pivotal to the rights-based account, because it explains why we sometimes have rights that others confer benefits on us and rights that others do not cause us economic harm. According to the rights-based account, we have a right to bodily safety, a right to reputation and rights in tangible things which are good against the whole world.51 We do not, however, have rights good against the world that others render assistance, or confer benefits on us, or not cause us economic harm.52 Rights of those kinds can

48

ibid 529. cf the discussion of K Barker, ‘Unreliable Assumptions in the Modern Law of Negligence’ (1993) 109 LQR 461, 470–71 as to whether the defendant in such cases has ‘chosen a legal obligation or duty’. 50 R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007), esp ch 2; A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing, 2007), esp ch 8. 51 Stevens (n 50) 5–8. 52 ibid 9, 21. 49

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only arise by way of undertaking, whether contractual or gratuitous.53 On this view, undertakings create rights and correlative obligations that do not and cannot otherwise exist, and the defining characteristic of those rights and obligations is that they are ‘voluntarily created by the person owing the duty’.54 Robert Stevens therefore argues that duties arising from assumptions of responsibility are distinctive because they are ‘voluntarily created’ and that ‘it is the objective manifestation of consent for which we are responsible that is the trigger for the right’.55 Similarly, Allan Beever argues that ‘the basis of liability’ in the assumption of responsibility cases ‘is not negligence per se but the defendant’s consent’,56 and that the ‘right protected by the so-called tort of negligent misrepresentation is based on the defendant’s consent’.57 The argument in favour of the voluntary obligation thesis is as follows. The courts are not concerned with the question whether the person said to owe the duty has made an express promise, nor whether they have subjectively consented to the imposition of the duty. The courts adopt an objective approach, so the relevant question is whether the defendant has manifested an intention to assume the obligation. Stevens says: Whether an implied undertaking has been given by conduct is a matter of interpretation, determined by convention as to when it can be concluded that one party is assuming responsibility for another. Like a surgeon, a solicitor owes a duty of care to his client even if he provides his services gratuitously.58

The essential problem with this idea is that the courts do not require that the defendant manifest any consent to the obligation in question, and the cases do not support the notion that there is any such requirement.59 Allan Beever claims that the right protected by the tort of negligent misrepresentation ‘is based on the defendant’s consent’ and ‘is a right given by the defendant to the claimant’.60 But Beever later acknowledges that ‘the issue is not whether the defendant agreed to place herself under a legal obligation’ or ‘agreed to be liable’ but ‘whether the defendant placed herself under a legal obligation by guaranteeing the accuracy of some information, by consenting to do something, etc’.61 But a person who consents to do something does not thereby place himself or herself under a legal obligation, unless he or she makes a commitment and manifests an intention to be legally bound by that commitment. If the defendant only consented ‘to do something’, and did not manifest any consent to the legal obligation that 53

ibid 33–37. ibid 11. ibid 10–11. 56 Beever (n 50) 285, citing R Grantham and C Rickett, ‘Directors’ “Tortious” Liability : Contract, Tort or Company Law?’ (1999) 62 MLR 133, 135–37. 57 Beever (n 50) 272. 58 Stevens (n 50) 12. 59 Apart from Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) (‘Williams’), which is discussed below. 60 Beever (n 50) 273. 61 ibid 303. See the acknowledgement (ibid 286) that the basis of the potential liability recognised in Hedley Byrne is that the defendant ‘consented to do something that placed him under an obligation he did not then meet’. 54 55

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arises from that conduct, then there is nothing distinctive about this category of obligation. It is simply imposed by law on the basis of conduct that is potentially harmful. Moreover, as will be discussed below, even in the cases where a commitment to doing something can be discerned, the law of negligence does not impose an obligation to do the thing that is promised, but rather to take reasonable care not to harm the person to whom the commitment is made. As Kit Barker has argued, the notion that the defendant has voluntarily done something that affects the claimant ‘says nothing which is particular to these cases, since voluntary conduct is already a prerequisite to liability throughout the law of negligence (and indeed throughout most other categories of law)’.62

B. Objectivity and Fairness There are numerous statements in the cases that the question whether the defendant has assumed responsibility is to be assessed objectively. This may be considered misleading, however, because there is rarely any evidence from which one can draw a conclusion as to whether the defendant objectively manifested a relevant intention. What is called an ‘objective test’ almost inevitably becomes a question as to whether it is reasonable to impose the obligation on the defendant.63 Two examples illustrate this point: the speech of Lord Hoffmann in Customs and Excise Commissioners v Barclays Bank plc 64 and that of Lord Sumption in Woodland v Swimming Teachers Association.65 In Customs and Excise Lord Hoffmann said that whether a defendant who provided information relied upon by the claimant assumed responsibility to the claimant for the accuracy of the information ‘does not depend upon what the defendant intended but, as in the case of contractual liability, upon what would reasonably be inferred from his conduct against the background of all the circumstances of the case’.66 But Lord Hoffmann went on to say that: [W]hether a defendant has assumed responsibility is a legal inference to be drawn from his conduct against the background of all the circumstances of the case, it is by no means a simple question of fact. Questions of fairness and policy will enter into the decision and it may be more useful to try to identify these questions than simply to bandy terms like ‘assumption of responsibility’ and ‘fair, just and reasonable’.67

But if questions of ‘fairness’ and ‘policy’ enter into the decision as to whether an assumption of responsibility has been made, then it is difficult to see how the 62

Barker (n 49) 474. See also Phelps v Hillingdon London Borough Council [2001] 2 AC 619 (HL) 654 (Lord Slynn) and the well-known statement of Lord Bingham in Customs and Excise Commissioners v Barclays Bank plc [2006] UKHL 28, [2007] 1 AC 181 [5] (‘Customs and Excise’) that the further the assumption of responsibility test is removed from the actual intentions of the defendant, the less difference there is between it and the Caparo three-step test. 64 Customs and Excise (n 63). 65 Woodland v Swimming Teachers Association [2013] UKSC 66, [2014] AC 537 (‘Woodland’). 66 Customs and Excise (n 63) [35]. 67 ibid [36]. 63

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process can be seen as involving any ‘inference’ at all. The court is not determining ‘what would reasonably be inferred from his [the defendant’s] conduct’, but what obligation can fairly be imposed on the defendant in the circumstances.68 As Lord Hoffmann said, ‘The purpose of the inquiry is to establish whether there was, in relation to the loss in question, the necessary relationship (or “proximity”) between the parties’.69 This tendency to treat the entry into a particular kind of relationship as the acceptance of a duty to take the care that can reasonably be expected in such a relationship is exemplified by the judgment of Lord Sumption in Woodland. The issue in that case was whether the Court should strike out a claim that a non-delegable duty of care was owed by a local education authority (Essex County Council) that engaged an independent contractor to provide swimming lessons to its pupils. The claimant was severely injured as a result of an alleged failure on the part of the independent contractor to supervise the lessons. The claim was struck out at first instance. That decision was upheld by the Court of Appeal, but overturned by the Supreme Court. Lord Sumption JSC, with whom Lord Clarke, Lord Wilson and Lord Toulson JJSC agreed, said that the assumption of responsibility is relevant to determining not only the existence of a duty of care, but also its scope. For a nondelegable duty to arise: The circumstances must be such that the defendant can be taken not just to have assumed a positive duty, but to have assumed responsibility for the exercise of due care by any one to whom he may delegate its performance.70

On the pleaded facts, Lord Sumption said, ‘the respondent education authority assumed a duty to ensure that the claimant’s swimming lessons were carefully conducted and supervised, by whomever they might get to perform these functions’.71 But the only conduct by which the respondent council can be said to have ‘assumed’ such a duty was setting up a school system, enrolling the claimant and organising swimming lessons in accordance with the National Curriculum. That conduct does not manifest any intention to assume a legal responsibility to the claimant. The onerous duty in question was justified by the existence of a relationship between the respondent and the claimant in which the claimant was in the custody, care and control of the respondent, the claimant was dependent on the protection of the respondent, the claimant was particularly vulnerable to the consequences of the respondent’s conduct, and the claimant had no control over the way in which the respondent conducted its operations.72 Those circumstances tell us that it was reasonable to expect the respondent to ensure that the swimming lessons were 68 ibid [35]. See also Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL) 181 (Lord Goff): ‘it must be expected that an objective test will be applied when asking the question whether, in a particular case, responsibility should be held to have been assumed by the defendant to the plaintiff ’ (emphasis added). 69 Customs and Excise (n 63) [35]. 70 Woodland (n 65) [11]. 71 ibid [26] (emphasis added). 72 These factors were listed by Lord Sumption at ibid [23].

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carefully supervised, and that it was fair to impose a duty on the respondent to do so, but there is nothing to justify an inference that the respondent assumed such a duty. It was not in fact clear that the respondent had any real choice as to whether to run a school system, enrol the claimant and conduct swimming lessons. But, as will be discussed further below, that may be considered irrelevant to the outcome of the case.

C. Objectivity and Intention The strongest authority in support of the view that the courts really are concerned with the question whether the defendant has manifested an intention to assume an obligation to the claimant is Williams v Natural Life Health Foods Ltd.73 The plaintiffs in that case entered into a franchise agreement in reliance on financial projections prepared by the managing director and principal shareholder of the franchisor company. Although the franchisor company’s dealings with the plaintiffs were conducted by another employee, the trial judge and a majority of the Court of Appeal concluded that the managing director had assumed responsibility to the plaintiffs on the basis of the prominence given, in the franchisor’s communications with the plaintiffs, to the managing director’s personal experience and expertise. Lord Steyn, speaking for a unanimous House of Lords, held that the evidence did not support the conclusion that the managing director was ‘willing to be personally answerable’. In the present case there were no personal dealings between Mr Mistlin and the plaintiffs. There were no exchanges or conduct crossing the line which could have conveyed to the plaintiffs that Mr Mistlin was willing to assume personal responsibility to them.74

Standing alone, the case would seem to provide support for the view that an objective manifestation of an intention to assume an obligation to the plaintiff is not only sufficient to establish a duty of care, but also necessary. Indeed, the case may be considered a model of a voluntaristic approach to the assumption of responsibility, which is concerned only with the question whether the defendant has manifested a willingness to accept an obligation to the plaintiff.75 In many cases in which a duty of care has been held to arise on the basis of an assumption of responsibility, however, there was no manifestation of a willingness to assume an obligation to the plaintiff.76 A good example is provided by Smith v Bush, where it was held that a valuer providing a valuation to a mortgagee owes 73

Williams (n 59). ibid 838. 75 But see the criticism of the case by Witting (Chapter 9). 76 Barker (n 49) 466 points in this regard to Chaudhry v Prabhakar [1989] 1 WLR 29, where a duty of care was conceded to have been owed by an amateur car enthusiast in providing gratuitous advice to a friend on a car purchase. The concession was questioned by May LJ, but considered by StuartSmith LJ and Stocker LJ to have been rightly made. The special circumstances took the case outside the normal rule that advice given in the context of a social relationship will not be subject to a duty of care. 74

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a duty of care to a mortgagor who is likely to purchase the property in reliance on it.77 Lord Templeman attributed this to the fact that the valuer knows that the mortgagor has paid for the valuation, will probably rely on it, and may suffer disastrous consequences if the valuer fails to exercise reasonable care and skill.78 Lord Griffiths rejected a submission that a ‘“voluntary assumption of responsibility” on the part of the person giving the advice’ was ‘essential to found liability for a negligent misstatement’.79 He said: I do not accept this submission and I do not think that voluntary assumption of responsibility is a helpful or realistic test for liability … Obviously, if an adviser expressly assumes responsibility for his advice, a duty of care will arise, but such is extremely unlikely in the ordinary course of events … The phrase ‘assumption of responsibility’ can only have any real meaning if it is understood as referring to the circumstances in which the law will deem the maker of the statement to have assumed responsibility to the person who acts upon the advice.80

Like Lord Templeman, Lord Griffiths found that the valuer owed a duty to the mortgagor because it was ‘highly probable’ that the mortgagor would act on the valuation, even though that was not its primary purpose.81 For Lord Jauncey the relevant question was whether ‘by reason of the proximate relationship between them’ the valuer must ‘be deemed to have assumed responsibility to [the mortgagor]’.82 The duty of care ‘resulted from the proximate relationship between’ the valuer and the mortgagor, and that in turn depended on knowledge of the mortgagor’s likely reliance on the valuation being brought home to the valuer.83 Another strong example is provided by Costello v Chief Constable of the Northumbria Police.84 The plaintiff, a police officer, was attacked and injured in a cell by a prisoner who had just been taken into custody and was known to be violent. A second officer, Inspector Bell, stood nearby and failed to render assistance. A prisoner who was known to be violent would not normally be left in the charge of a single police officer, and a third officer, Sergeant Hall, had left the cell area on the assumption that Inspector Bell would render assistance if required. By positioning himself near the cell as the prisoner was led in, Inspector Bell was held to have assumed a responsibility to the plaintiff. May LJ said: There was an obvious close relationship between [the plaintiff] and Insp Bell. Insp Bell may readily be said to have assumed a responsibility to help the plaintiff if she needed help. The chief constable, through Insp Bell and on his own account, may readily be said to have assumed an equivalent responsibility.85 77 Smith v Bush (n 10). As will be discussed below, the disclaimer can be left to one side since the Unfair Contract Terms Act 1977 required the court to determine the existence of a duty of care by considering whether it would exist ‘but for’ the disclaimer (Lord Griffiths at 857). 78 ibid 848, 852. 79 ibid 862. 80 ibid. 81 ibid. 82 ibid 871. 83 ibid 872. 84 Costello (n 5). 85 ibid 558.

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In that case, the effect of Inspector Bell’s conduct on the plaintiff did not occur through the plaintiff ’s reliance, but through its effect on the behaviour of the third officer, Sergeant Hall, who would have stood by to render assistance had it not been for Inspector Bell’s presence. The assumption of responsibility was implied only from Inspector Bell’s presence in circumstances in which, following normal police procedure, he could have been expected to render assistance to the plaintiff. The mere presence of a senior military officer was held to amount to an assumption of responsibility in Ministry of Defence v Radclyffe.86 Captain Jones was in charge of a group of soldiers stationed in Germany for adventure training. On a day on which there was no training, a group of soldiers went to a nearby reservoir to swim, accompanied by Captain Jones and the claimant, a second lieutenant. Some of the soldiers asked Captain Jones for permission to jump from a 20-metre-high bridge into the water. Captain Jones authorised the jump, and told the claimant that it would be ‘bad form’ for the officers not to join in the jump to show the men that they were not frightened. The following day the claimant brought another group of soldiers to the reservoir, felt obliged to allow them to jump and also to jump before them and injured himself in doing so. It was accepted that rank and military discipline remained relevant even though the soldiers were off duty, and that Captain Jones had authority to prevent the jump. The Court of Appeal held that Captain Jones owed his subordinates a duty to take reasonable care to guard them against the risk of foreseeable injury: By his own presence there in the circumstances that pertained and by reason of his rank, he assumed responsibility to prevent them from taking undue risks of which he was or ought to have been aware. They asked him if they might jump. The very fact that they asked predicates reliance sufficient for a duty of care and their assumption that he had authority to order them not to jump.87

In those circumstances it is difficult to see how Captain Jones could be said to have manifested any intention to assume an obligation to his subordinates with respect to their safety. Moreover, if the obligation arose merely from his rank and his presence, it is difficult to see the duty as arising from anything resembling a choice on the part of Captain Jones. Rather, to borrow the language used by Lord Sumption in Woodland, the duty would appear to arise from Captain Jones’ custody, care and control of those under his command, and the claimant’s consequent particular vulnerability to the consequences of Captain Jones’ conduct.

D. Express Undertakings In a small number of cases an assumption of responsibility has been held to arise from an express undertaking made by the defendant to the claimant. Two features of these cases are instructive. The first is that the obligations recognised do not reflect the undertakings made by the defendants. In W v Essex County Council, for 86 87

Ministry of Defence v Radclyffe [2009] EWCA Civ 635. ibid [21].

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example, the claimant foster parents were assured by employees of the defendant council that no adolescent known or suspected to be a sexual abuser would be placed with them.88 In Calvert v William Hill Credit Ltd a pathological gambler was told that his betting account would be closed and that he would be prevented from reopening it for six months.89 In these cases, the promise expressly made by the defendant was not a promise to take care, but a promise to perform a task. The defendant’s legal responsibility cannot be said to arise from any express assumption of a legal duty to take care. At most, it may be said that, in the promise to perform a task, there is an implied promise to take care in doing so. The second instructive point about the cases involving express undertakings is that, even in the strongest cases, the giving of the undertaking is not in itself sufficient to establish a duty of care. The duty of care arises not from the undertaking itself, but from the potential for the undertaking to harm the claimant, which in many cases will occur through the claimant’s reliance. In Lennon v Commissioner of Police of the Metropolis, for example, a police officer transferring from one force to another asked the personnel officer handling the transfer whether taking time off between the appointments would affect his entitlements.90 The personnel officer told him to leave everything to her, that she would make the arrangements and that taking the time off would not affect his entitlements. Mummery LJ, with whom Rix and Ward LJJ agreed, followed Lord Morris in Hedley Byrne in holding that in this kind of case the duty of care arises from the defendant taking it upon himself or herself to give information or advice knowing it will be relied upon.91 ‘The striking feature of this case is that the duty of care arises from an express assumption of responsibility for a particular matter, on which Mr Lennon relied’, and that the personnel officer ‘led Mr Lennon to believe that he could leave it to her and rely on her to be responsible for handling the [transfer] arrangements’.92 The case thus exemplifies the point that even in the case of an express undertaking, the obligation to take care does not arise from the making of an undertaking alone, but depends on a consideration of the effect of the defendant’s promise on the claimant, either directly through reliance, or indirectly through its effect on the conduct of others.

E. Disclaimers The fact that a disclaimer can prevent a duty of care arising by way of an assumption of responsibility, as it did in Hedley Byrne, would seem to provide strong support for the view that the law is concerned in these cases to determine whether a voluntary commitment has been made. In Hedley Byrne the disclaimer was 88 89 90 91 92

W v Essex County Council [1999] Fam 90 (CA); reversed in part [2001] 2 AC 592 (HL). Calvert v William Hill Credit Ltd [2008] EWCA Civ 1427, [2009] Ch 330. Lennon v Commissioner of Police of the Metropolis [2004] EWCA Civ 130, [2004] 1 WLR 2594. ibid [18], quoting Hedley Byrne (n 1) 502–03 (Lord Morris). Lennon (n 90) [28], [34].

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unanimously found to be effective to prevent a duty arising, although different reasons were offered in support of that conclusion. Lord Reid held that the disclaimer prevented the undertaking of a duty to exercise care from being inferred.93 His Lordship regarded this as ‘a very different matter’ from a contractual exclusion of liability. Lord Morris held that the words ‘were apt to exclude any liability for negligence’, citing a case concerned with a contractual exclusion of liability for property damage caused by negligent driving.94 Lord Hodson held that the effect of the disclaimer was that the respondents did not assume a duty of care and ‘nor was such a duty imposed upon them’.95 Lord Devlin held that a person ‘cannot be said voluntarily to be undertaking a responsibility if at the very moment when he is said to be accepting it he declares that in fact he is not’.96 Lord Pearce held that the words prevent a special relationship arising because they make it impossible to say that ‘a duty of care and a liability for negligence was assumed’.97 Disclaimers have been held in subsequent cases to prevent duties of care arising by way of an assumption of responsibility.98 In Smith v Bush an assumption of responsibility was held to arise in the face of a disclaimer, but that was because the Unfair Contract Terms Act 1977 required the court to determine whether a duty of care was owed by considering whether it would have been owed but for the disclaimer.99 Lord Griffiths held that, since the disclaimer was prominent and clearly worded it would, on the authority of Hedley Byrne, have been effective at common law to ‘exclude the surveyors’ liability for negligence’,100 while Lord Jauncey held that, if the circumstances had arisen before 1977, the disclaimers would undoubtedly have been effective to negative the assumption of responsibility.101 The effectiveness of a disclaimer is most simply explained on the basis that the disclaimer precludes a finding that an obligation has been assumed. It can also be explained, however, on the basis that the disclaimer prevents a relationship of proximity arising.102 The disclaimer damages the nexus between the statements made by the defendant and the economic harm suffered by the claimant. Because

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Hedley Byrne (n 1) 492–93. ibid 504, citing Rutter v Palmer [1922] 2 KB 87. Hedley Byrne (n 1) 511. 96 ibid 533. 97 ibid 540. 98 See, eg, McCullagh v Lane Fox & Partners Ltd [1996] PNLR 205; Omega Trust Co Ltd v Wright Son & Pepper (1998) 75 P & CR 57; Avora Fine Arts Investment Ltd v Christie, Manson & Woods Ltd [2012] EWHC 2198; AB v A Chief Constable [2014] EWHC 1965 [62]. 99 Smith v Bush (n 10) 857. 100 ibid 856. 101 ibid 872. 102 In McCullagh (n 98) 236 Hobhouse LJ (with whom Sir Christopher Slade and Nourse LJ agreed on this point) held that the effect of a disclaimer was that proximity was negatived because a reasonable person would understand there was no assumption of responsibility. Similarly in Galliford Try Infrastructure Ltd v Mott Macdonald Ltd [2008] EWHC 1570 (TCC) [328], [331] disclaimers were held to be ‘simply aspects of the factual background from which the Court determines whether a duty of care arises’ and ‘“pointers” towards there being no duty of care’. 94

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reliance in the face of the disclaimer would be unreasonable, the provision of advice or an opinion along with a disclaimer does not create a sufficiently serious risk of harm, and the recipient cannot be said to be sufficiently closely and directly affected by the conduct of the defendant to justify a duty of care. Thus, for example, a solicitor giving casual legal advice in a social situation with an express disclaimer that the advice is not to be relied upon is in a similar position to the bankers in Hedley Byrne. It cannot be said that the recipient of the advice is so closely and directly affected by the giving of the advice that the solicitor ought to be mindful of the recipient’s economic interests, or be made to answer for the consequences of a failure to do so. This proximity-based explanation of the effectiveness of a disclaimer only works in those situations in which reliance is the only possible source of harm. In situations in which the source of potential harm is not the claimant’s reliance, the effectiveness of a disclaimer is dependent on the operation of another legal mechanism.103

III. The Voluntary Entry into a Relationship If we accept that the obligation created by an assumption of responsibility is not voluntarily assumed, but imposed by law, the obligation could nevertheless be regarded as distinctive on the basis that it arises from the defendant’s volitional entry into a particular kind of relationship with the claimant. On this view, the ‘assumption of responsibility’ refers not to the assumption of a legal obligation, but the volitional entry into a position of responsibility in which the law imposes a duty. In other words, the defendant has brought himself or herself into a relationship with the claimant in which care for some interest of the claimant can reasonably be expected.104 It might be said that what is distinctive about the class of cases involving an assumption of responsibility is that the duty arises out of an antecedent relationship between the claimant and the defendant, and, generally speaking, that relationship is one that the defendant has freely entered into. This view of the assumption of responsibility was articulated in White v Jones by Lord Browne-Wilkinson, who suggested that the key to understanding the concept was to understand that it is concerned with the assumption of responsibility for a task. A ‘special relationship

103 Such as the defence of volenti non fit injuria recognised in disclaimer cases such as Bennett v Tugwell [1971] 2 QB 267; Birch v Thomas [1972] 1 WLR 294; Burnett v British Waterways Board [1972] 1 WLR 1329. 104 Barker (n 49) 472–73 considered the related questions as to whether the defendant can be said to have chosen a relationship of reliance or dependence or to have chosen to put the claimant at a specific risk of harm.

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is created by the defendant voluntarily assuming to act in the matter by involving himself in the plaintiff ’s affairs or by choosing to speak’.105 If the responsibility for the task is assumed by the defendant he thereby creates a special relationship between himself and the plaintiff in relation to which the law (not the defendant) attaches a duty to carry out carefully the task so assumed.106

Does the defendant’s volitional entry into a relationship with the claimant mark out the assumption of responsibility as a special duty category? There is no doubt that choice is a feature of many of the assumption of responsibility cases.107 In most cases the defendant has willingly entered into a relationship with the claimant, or has willingly embarked upon a task that renders the claimant particularly vulnerable to the consequences of the defendant’s actions. The existence of an antecedent relationship between the claimant and the defendant arising from conduct on the part of the defendant that is more or less freely chosen does factually mark out the assumption of responsibility cases, but it does not provide an explanation for the obligations that are recognised. There are three reasons for this. First, there is no requirement that the defendant manifest a willingness to enter into any kind of relationship with the claimant; it is enough that he or she has taken on responsibility for a task which may have an effect on the claimant. Secondly, there are cases in which an assumption of responsibility has been found despite the defendant having had no real choice but to take on the task. Thirdly, as we will see in the next section of this chapter, it is not sufficient to establish a duty to say that the defendant has taken on a task which may affect the claimant or a class of persons including the claimant. It is still necessary to consider the closeness and directness of the effect of the defendant’s conduct on the claimant. An assumption of responsibility can arise without the defendant manifesting a willingness to enter into a relationship with the claimant. This can be seen most clearly in the cases recognising that a solicitor preparing a will may owe a duty of care to the proposed beneficiaries, and the cases recognising that a valuer engaged by a mortgagee may owe a duty of care to a mortgagor who may be expected to rely on the valuation. In each case, the defendant agrees to do something that he or she knows or should know will have a close and direct effect on the claimant, but there is no basis for saying that the defendant has manifested a willingness to enter into any kind of relationship with the claimant. In each case, there is antecedent conduct on the part of the defendant that establishes a relationship of proximity, and the defendant has accepted responsibility for a task that he or she could have avoided, but that is all. 105

White v Jones (n 7) 274. ibid 273. 107 As Barker (n 49) 470 has observed, the idea that the defendant has chosen to enter into a relationship with the claimant has commonly been invoked in the case law since it was articulated by Lord Reid in Hedley Byrne. 106

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Some assumption of responsibility cases involve a clear choice by the defendant to act in the matter in question, and that decision seemed to play an important role in the establishment of the relevant obligation. In White v Jones, for example, Lord Browne-Wilkinson emphasised the fact that the solicitor ‘has assumed to act in a matter closely touching the economic well-being of the intended beneficiary’.108 In other cases, assumptions of responsibility have been held to have been made even though it is not clear that the defendant had any real choice but to enter into the relationship in question. Woodland is a good example. As noted above, the issue was whether it was arguable that the local education authority owed a non-delegable duty of care to its pupils that required the authority to procure the exercise of reasonable care in the conduct of swimming lessons provided by contractors. Lord Sumption JSC held that for a non-delegable duty to arise in a case of this kind, it was necessary for the defendant ‘not just to have assumed a positive duty, but to have assumed responsibility for the exercise of due care by anyone to whom he may delegate its performance’.109 It is difficult to see how anyone could assume such a specific duty without spelling it out expressly, but Lord Sumption said: In my opinion, on the limited facts pleaded or admitted, the respondent education authority assumed a duty to ensure that the claimant’s swimming lessons were carefully conducted and supervised, by whomever they might get to perform these functions. The claimant was entrusted to the school for certain essential purposes, which included teaching and supervision. The swimming lessons were an integral part of the school’s teaching function. They did not occur on school premises, but they occurred in school hours in a place where the school chose to carry out this part of its functions.110

Clearly there was an ‘antecedent relationship between the claimant and the defendant, independent of the negligent act or omission itself ’,111 but the defendant exercised little, if any choice, in entering into that relationship. The Education Act 1996 required the defendant to secure that sufficient primary and secondary schools were available to meet the needs of the population in its area and empowered the defendant to establish and maintain schools for that purpose.112 While it may not have been required to admit a particular child to one of its schools, the defendant was required to allow parents to express preferences and was under a qualified obligation to comply with any such preference.113 The defendant was required to secure that the National Curriculum was followed in its schools, and the National Curriculum at the time appears to have included the teaching of swimming to students in years three to six.114

108

White v Jones (n 7) 275 (emphasis added). Woodland (n 65) [11]. 110 ibid [26]. 111 ibid [23]. 112 Education Act 1996, ss 13–16. 113 ibid s 411. 114 ibid ss 351–53; Education (National Curriculum) (Attainment Targets and Programmes of Study in Physical Education) (England) Order 1998, SI 1998/1987. 109

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Under that legal framework, the defendant exercised very little choice in the establishment and operation of the relevant school, the enrolment of the claimant or the establishment of swimming lessons. Not only is it difficult to see how it is possible to impute from that conduct ‘the assumption of a positive duty to protect the claimant from harm’,115 it is difficult to see the defendant’s relationship with the claimant as the result of any meaningful choice on the part of the defendant. The defendant owed a non-delegable duty to the claimant not because it assumed such an obligation, nor because it chose to be in a relationship of the relevant kind (involving care and control and particular vulnerability), but because it was in a relationship in which its conduct closely affected the claimant. It clearly did not matter on the facts of the case whether the defendant had chosen to enter into that relationship or not. What mattered was that there was such a relationship. What characterises the assumption of responsibility cases is that the defendant has accepted a role or embarked on a task in which the claimant is so closely and directly affected by the defendant’s acts and omissions that the defendant ought to have the claimant in contemplation when considering whether and how to act.116 In most of the situations that are regarded as falling within this category, there will not be such a relationship of proximity between the defendant and the claimant unless the defendant has chosen to enter into one. It is not, however, the defendant’s exercise of choice in entering into the relationship that is significant, but the capacity of the defendant to affect the claimant’s interests. In cases such as Woodland the defendant did not exercise any real choice in entering into the relationship, and in third party cases such as Smith v Bush and White v Jones we cannot say that the defendant willingly entered into a relationship with the claimant.117 The fact that, in most cases, the defendant would not have had any capacity to affect the claimant absent his or her willed entry into the relevant relationship with the claimant may create the false impression that it is the willed entry into the relationship with the claimant that is significant, rather than the nature of that relationship.

IV. The Assumption of Responsibility as Proximity If the assumption of responsibility is to be understood as a question of proximity, then it is crucial to consider the potential effect of the defendant’s conduct on

115

Woodland (n 65) [23]. The negligent misstatement cases show that the relationship does not need to be antecedent to or independent of the negligent act. 117 See also Anwar v Ng Chong & Hue LLC [2014] SGCA 34, [2014] 3 SLR 761 [71] where Andrew Phang Boon Leong JA suggested that it was ‘pushing the boundaries of sensible argument’ to suggest that a solicitor who is advising a client undertakes a responsibility to an associate of the client who stands to benefit from that advice. 116

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the claimant. The proximity inquiry is essentially concerned with the question whether the claimant was so closely and directly affected by the defendant’s conduct that the defendant ought to have had the claimant in mind when considering whether and how to act.118 The essential criterion is ‘the directness and immediacy between the defendant’s role in events and the claimant’s injuries’.119 In general, the inquiry involves the consideration of a range of factors concerning the relationship between the defendant, the claimant and the source of harm or risk in question,120 and—as the discussion below will show—this is equally true of the assumption of responsibility cases. This section considers some of the common types of assumption of responsibility cases and the kinds of factors that are considered by the courts to be necessary to establish a duty of care in those cases. The cases demonstrate that what is needed to establish a duty of care varies according to the type of case. In many situations, for example, it is the likelihood of reliance by the claimant that is crucial. In others there is no reliance by the claimant, but the defendant’s conduct affects the actions of others in a manner that is detrimental to the claimant.

A. Rescue It is well established that a person who simply chances upon another in need of easy rescue is under no legal duty to effect the rescue. This is the case even if the potential rescuer has some special skill that would be of particular assistance to the would-be rescuee.121 If the potential rescuer and rescuee are alone in an isolated situation, then the potential rescuer does exercise a certain measure of control over the rescuee’s interests, because the potential rescuer is in a unique position to effect the rescue and the rescuee is vulnerable to the consequences of the actions of the potential rescuer. But these factors alone are insufficient to establish a duty of care. Even if the potential rescuer has a statutory function to receive calls for help, a duty may not arise. A fire brigade called upon to help fight a fire is not, without more, under a common law duty to answer the call for help.122 A similar conclusion

118 Donoghue v Stevenson (n 21) 580 (Lord Atkin); Yuen Kun Yeu v A-G (Hong Kong) [1988] 1 AC 175, 194–95 (Lord Keith for the Privy Council). In Childs v Desormeaux 2006 SCC 18, [2006] 1 SCR 643 [10] McLachlin J (for the Court) referred to the concept of proximity formulated in this way as ‘the foundation of the modern law of negligence’. 119 Sutradhar v Natural Environment Research Council [2006] UKHL 33, [2006] 4 All ER 490 [47] (Lord Brown). 120 See A Robertson, ‘Justice, Community Welfare and the Duty of Care’ (2011) 127 LQR 370, 374–75, ‘On the Function of the Law of Negligence’ (2013) 33 OJLS 31, 33–34. 121 Capital & Counties plc v Hampshire County Council [1997] QB 1004, 1035 (‘Capital & Counties’): ‘a doctor who happened to witness a road accident will very likely go to the assistance of anyone injured, but he is not under any legal obligation to do so … it is clear that no such duty of care exists, even though there may be close physical proximity, simply because one party is a doctor and the other has a medical problem which may be of interest to both’. But cf Lowns v Woods (1996) Aust Torts Rep 81-376. 122 Capital & Counties (n 121).

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applies to the police123 and the coastguard.124 In these cases, the receipt of a call for help alone does not create a sufficiently close relationship between the parties to establish a duty to respond.125 In contrast, the courts have found that a duty will arise where the claimant has been told that help is forthcoming.126 The key factor in these latter cases appears to be the impact that the defendant’s actions have had on the conduct of the claimant or of others. In Densmore v City of Whitehorse,127 the court observed that because the fire brigade had said it would attend the plaintiff ’s house, the plaintiff did not herself take any further protective action, such as removing her possessions from the house or enlisting neighbours to assist her in fighting the fire. The court framed the fire brigade’s duty as a duty not to mislead the claimant about whether help was on its way. Similarly, in Kent v Griffiths,128 in which an ambulance accepted a call for help but took 40 minutes to arrive, the Court of Appeal said that ‘The acceptance of the call in this case established the duty of care … If wrong information had not been given about the arrival of the ambulance, other means of transport could have been used’.129 As discussed above, Costello130 is a case where the defendant’s actions affected the conduct of others to the detriment of the claimant, thus giving rise to a duty of care. Inspector Bell’s presence near the claimant meant that Sergeant Hall left the area and was not on hand to assist the claimant when she was attacked. The Supreme Court of Canada has held that a person who invites another onto his boat owes a duty to take reasonable care of the passenger’s safety. In Horsley v MacLaren (The Ogopogo), Laskin J (dissenting, but not on this point) described the boat operator’s duty to passengers as follows: Having brought his guests into a relationship with him as passengers on his boat, albeit as social or gratuitous passengers, he was obliged to exercise reasonable care for their safety. That obligation extends, in my opinion, to rescue from perils of the sea where this is consistent with his duty to see to the safety of his other passengers and with concern for his own safety … [T]he employee or passenger, who falls overboard from whatever cause, should be entitled to look for succour to the operators of the ship because of the necessary dependency on them for return to shore.131

Thus, what differentiates the boat operator from someone who simply comes across another person in need of rescue is that there is an antecedent relationship between the boat operator and his passenger in which the passenger is particularly vulnerable to the consequences of the boat operator’s action or inaction. As the

123

Alexandrou v Oxford [1993] 4 All ER 328. OLL Ltd v Secretary of State for Transport [1997] 3 All ER 897. 125 Alexandrou v Oxford (n 123) 338 (Glidewell LJ). 126 Densmore v City of Whitehorse (Supreme Court of the Yukon Territory, 10 July 1986) (fire brigade); Kent v Griffiths [2001] 1 QB 36 (ambulance services). 127 Densmore v City of Whitehorse (n 126). 128 Kent v Griffiths (n 126). 129 ibid [49]. 130 Costello (n 5). 131 Horsley v MacLaren (The Ogopogo) [1972] SCR 441, 461–62 (emphasis added). 124

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final sentence in the above quote indicates, it is not the boat operator’s undertaking, but the passenger’s dependency that is the basis of the passenger’s entitlement. The above cases considered the circumstances in which a potential rescuer might owe a duty to embark on a rescue. Another question is whether a person who does embark on a rescue comes under a duty to take reasonable care to complete it, or simply under a duty not to make the rescuee’s situation worse. The Court of Appeal in Capital & Counties132 was of the latter view, holding that a fire brigade that attends a fire and takes control of the scene does not owe a duty to the owner/occupier to take reasonable care to fight the fire effectively; the fire brigade only owes a duty not to make things worse through positive negligent action.133 Stuart-Smith LJ in Capital & Counties applied the same analysis to doctors, asserting that if a doctor who witnesses a road accident goes to the assistance of an injured person, ‘his only duty as a matter of law is not to make the victim’s condition worse’.134 Lord Morris took a different view in Hedley Byrne, stating that a doctor who proceeds to treat someone in such a situation ‘must exercise reasonable skill and care in doing so’.135 Lord Morris cited Lord Atkinson in Banbury v Bank of Montreal,136 who had said that: 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.137

Two cases in which a defendant who embarked on a rescue was found to owe a duty to take reasonable care in carrying out that rescue are Zelenko v Gimbel Bros138 and Barrett v Ministry of Defence.139 In Zelenko, a customer was taken ill while in the defendant’s store. The defendant was alleged to have placed the customer in an infirmary and left her alone for several hours without medical care. She eventually died. On an unsuccessful motion to dismiss, the defendant was held to owe a duty to the plaintiff not to omit to do what an ordinary person would do in assisting the plaintiff. Importantly, the court observed that: If defendant had left plaintiff ’s intestate alone, beyond doubt some bystander, who would be influenced more by charity than by legalistic duty, would have summoned an ambulance. Defendant segregated this plaintiff ’s intestate where such aid could not be given and then left her alone.140

Thus in Zelenko, as in Costello, it was essential to the finding of the duty of care that the defendant’s conduct had excluded others from having the opportunity 132

Capital & Counties (n 121). ibid 1038. 134 ibid 1035. 135 Hedley Byrne (n 1) 495. 136 Banbury (n 26). 137 ibid 689. 138 Zelenko v Gimbel Bros (1935) 287 NYS 134 (Supreme Court of New York), affd (1935) 287 NYS 136 (Supreme Court of New York, Appellate Division). 139 Barrett v Ministry of Defence [1995] 1 WLR 1217 (CA). 140 Zelenko (n 138) 135. 133

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to assist the plaintiff. The duty of care was not founded on the mere fact that the defendant had embarked on a rescue; a necessary element was that the defendant’s conduct had an effect on the conduct of others, to the detriment of the plaintiff. In Barrett v Ministry of Defence the plaintiff ’s husband, a naval officer stationed in Norway, lost consciousness due to heavy intoxication. Another officer took the plaintiff ’s husband to his bunk and placed him in the recovery position. The plaintiff ’s husband was later found dead, having asphyxiated on his own vomit. The trial judge found, and it was conceded on appeal, that the defendant had assumed responsibility for the plaintiff ’s husband after he lost consciousness and therefore owed him a duty of care, which it had breached by not calling for medical attention and not properly supervising the unconscious officer. Robert Stevens points to Barrett as demonstrating that a defendant who commences a rescue owes a duty to place the claimant in the position that reasonable care would achieve, and that this duty arises because of the defendant’s voluntary assumption of responsibility for the claimant.141 However, Barrett is a weak authority on this issue, as the Ministry of Defence conceded that it had breached a duty to the officer after the officer lost consciousness, so the Court of Appeal did not consider the basis of any such duty. Had the Court of Appeal considered the question, it may have adopted a similar approach to Zelenko and found that a necessary element of the duty was that, by taking the officer to his bunk, the rescuer had deprived the rescuee of the opportunity to receive more effective assistance from others. Whether the rescuer–rescuee relationship carries with it expectations beyond not making the situation worse is a controversial question which may be resolved by the choice between the ‘voluntary assumption of obligation’ and ‘proximity’ models of liability. If, as Stevens argues, the basis of obligation is the implied undertaking made by the rescuer, then that could properly be understood to give rise to a positive obligation to perform the rescue with reasonable care. The making of the undertaking gives the promisee a right against the promisor to its performance. Proximity analysis, on the other hand, depends on the claimant being in some way vulnerable to the effects of the defendant’s conduct. If the basis of obligation is simply the relationship of proximity created by the rescuer embarking on the rescue, then it becomes crucial to consider the potential effects of the rescuer’s actions on the rescuee, or other potential rescuers. A duty to complete the rescue would be justifiable only if the rescuee might be expected to rely on the rescuer in some way, or if the rescuer’s actions might adversely affect the rescuee by depriving him or her of the opportunity to be assisted by other potential rescuers.

B. Railway Gates and Navigational Lights A similar question to that posed by the rescue cases is whether a person who takes it upon himself or herself to warn others of a danger comes under a positive duty of care which could be breached by failing to maintain those warnings. 141

Stevens (n 50) 12.

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This question was considered in a number of historical ‘railway gate’ cases— cases where the defendant maintained, absent any legal duty to do so, a practice of locking pedestrian gates at level crossings when a train was passing, and where, on a particular occasion, the defendant failed to lock the gate and the claimant was struck by a train at the crossing. The defendant railway company was held liable for its failure to lock the gate in Mercer v South Eastern & Chatham Railway Companies’ Managing Committee.142 Lush J in that case observed: In this case I think that the defendants gave a tacit invitation, and that it was in consequence of his acting upon that invitation that the plaintiff was injured. It may seem a hardship on a railway company to hold them responsible for the omission to do something which they were under no legal obligation to do, and which they only did for the protection of the public. They ought, however, to have contemplated that if a self-imposed duty is ordinarily performed, those who knew of it will draw an inference if on a given occasion it is not performed. If they wish to protect themselves against the inference being drawn they should do so by giving notice, and they did not do so in this case.143

The courts in Skelton v London and North Western Railway Co144 and Soulsby v City of Toronto145 reached a different conclusion. Skelton was decided on the basis that the claimant had been guilty of contributory negligence and thus was not entitled to recover. However, Willes J held that in any event the defendant did not owe a duty of care, and Montague Smith J rejected the argument that the defendant’s failure to fasten the gate amounted to an invitation to pedestrians to cross the line. A stumbling block for the claimant in Skelton was that, while the defendant usually fastened the gate at the approach of a train, there was no evidence that this was an invariable practice. This made it difficult to conclude that an unfastened gate constituted a signal or invitation by the defendant to pedestrians to cross the line.146 In concluding that the defendant in Soulsby owed no duty of care, Britton J pointed to the fact that, when the plaintiff came to the crossing, the watchman responsible for closing the gate was nowhere to be seen. ‘That in itself should have suggested to [the] plaintiff the possibility at least that the gate was open, not as an intimation that there was no danger, but that the watchman had been withdrawn’.147 Further, the watchman was employed by the city corporation and not the railway company, and did not have access to train timetables, but rather

142 143 144 145 146 147

Mercer v South Eastern & Chatham Railway Companies’ Managing Committee [1922] 2 KB 549. ibid 554. Skelton v London and North Western Railway Co (1867) LR 2 CP 631. Soulsby v City of Toronto (1907) 15 OLR 13. Skelton (n 144) 636 (Willes J), 637 (Montague Smith J). Soulsby (n 145) [15].

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relied solely on observation to know when a train was approaching. The plaintiff was thus in just as good a position as the watchman to see approaching trains.148 An analogous category of cases is the ‘navigational light’ category, in which the defendant (usually the Crown) constructed navigational lights for ships, but failed to take reasonable care to maintain those lights. In The Queen v Nord-Deutsche Versicherungs-Gesellschaft,149 range lights on the coast, which were by statute under the control of the Crown,150 had shifted so that they were no longer accurate in indicating a ship’s position. The ship Hermes used the lights to navigate and collided with the ship Transatlantic; the Transatlantic consequently sank. The Crown was found partially151 liable for the damage. While there was evidence that the pilot of the Hermes knew that the range lights were not entirely accurate,152 the Supreme Court of Canada held that ‘mariners were entitled to place reliance’ on the lights to assist their navigation.153 Similarly, in Indian Towing Co v United States,154 the coastguard was held liable in negligence for allowing a lighthouse it operated to go out, causing a tug to run aground. Frankfurter J held for the majority: The Coast Guard need not undertake the lighthouse service. But once it exercised its discretion to operate a light on Chandeleur Island and engendered reliance on the guidance afforded by the light, it was obligated to use due care to make certain that the light was kept in good working order, and if the light did become extinguished, then the Coast Guard was further obligated to use due care to discover this fact and to repair the light or give warning that it was not functioning.155

The railway gate and navigational light cases therefore turn on reliance by the claimant. The defendant in these cases creates a risk of harm by engaging in conduct that engenders reasonable reliance on the part of others, and then failing either to behave consistently, or to warn those who might be relying on its conduct. The situation in these cases is very closely analogous to promissory and proprietary estoppel cases, where A induces an assumption as to his or her future behaviour, which is reasonably relied upon by B. That sequence of events justifies an obligation on the part of A to behave consistently, warn B of an intended departure, or answer for the loss suffered by B as a result of A’s failure to behave consistently or prevent harm by providing an adequate warning.156

148

ibid [19]–[20]. The Queen v Nord-Deutsche Versicherungs-Gesellschaft [1971] SCR 849. 150 Canada Shipping Act, RSC 1952, s 591, as quoted in the decision of the trial judge: Nord-Deutsche Versicherungs-Gesellschaft v The Queen [1969] 1 Ex CR 117 [136]. 151 The crews of the two ships were also found to have been contributorily negligent. 152 Queen v Nord-Deutsche (n 149) 858. 153 ibid 863 (Ritchie J, Fauteux CJ, Abbott and Hall JJ agreeing). See also the comments of the trial judge in Nord-Deutsche v Queen (n 150) [137]. 154 Indian Towing Co v United States 350 US 61 (1955). 155 ibid 69. 156 See A Robertson, ‘Three Models of Promissory Estoppel’ (2013) 7 Journal of Equity 226, 247. 149

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C. Valuers and Third Parties Valuers have been found to owe duties of care to persons other than their clients on the basis of assumptions of responsibility in a number of circumstances. A valuer engaged by a mortgagor to value a property has been held to owe a duty to the mortgagee who made an advance in reliance on the valuation.157 A valuer engaged by a mortgagee to value a property has been held to owe a duty to the mortgagor who purchased a property in reliance on the valuation.158 A valuer engaged by a mortgagee to value a property has been held to owe a duty to the mortgagor whose property was sold at a significant undervalue in reliance on the valuation.159 And an auditor engaged by a company to value shares has been held to owe a duty to a shareholder whose shares were compulsorily acquired at a significant undervalue in reliance on the valuation.160 In all of these cases, the courts have emphasised the fact that the valuer knew that the claimant was very likely to rely on the valuation. This expectation of reliance may arise, for example, because the valuer directly addressed its valuation to the claimant with the purpose of inducing the claimant to rely on it,161 because the valuer was aware that the claimant was unlikely to obtain his or her own independent valuation (for example because the claimant was not well off),162 or because, in the circumstances, the claimant had no ability to challenge the valuation.163 As Lord Jauncey said in Smith v Bush: It is critical to this conclusion that the appellants knew that Mrs Smith would be likely to rely on the valuation without obtaining independent advice … I would not … conclude that the mere fact that a mortgagee’s valuer knows that his valuation will be shown to an intending mortgagor of itself imposes upon him a duty of care to the mortgagor. Knowledge, actual, or implied, of the mortgagor’s likely reliance upon the valuation must be brought home to him.164

In cases such as Smith v Bush and Yianni v Edwin Evans & Sons, it was also a relevant feature that the defendant’s failure to take care had devastating financial consequences for the claimant—namely, causing a not-very-well-off claimant to sink most, if not all, of their savings into an unsound property. That has not, however, been a feature of all of the cases. In Killick v PricewaterhouseCoopers the claimant was the estate of a shareholder who had owned some 16 million shares which had been sold at an undervalue; and in Capita Alternative Fund Services v 157

Cann v Willson (1888) 39 Ch D 39. Yianni v Edwin Evans & Sons [1982] QB 438; Smith v Bush (n 10); Merrett v Babb [2001] QB 1174. 159 Asif v City (Europe) Ltd (Ch, 25 June 2002). 160 Killick v PricewaterhouseCoopers [2001] PNLR 1. 161 Cann v Willson (n 157) 42 (Chitty J). 162 Smith v Bush (n 10) 859–60, 865 (Lord Griffiths), 871–72 (Lord Jauncey); Merrett v Babb (n 158) [44] (May LJ); Asif (n 159) [69]. 163 Killick (n 160) [44]: the claimant was unable to challenge the auditors’ valuation except on grounds of fraud. 164 Smith v Bush (n 10) 871–72. See also the comments of Lord Templeman at 847. 158

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Drivers Jonas165 the claimants were the trustee and sponsor respectively of an investment vehicle representing 480 individual investors. It was not suggested in either of those cases that the defendant’s conduct had the effect, or potential effect, of denuding the claimant of all of his or her financial resources.

D. Solicitors and Potential Beneficiaries It is firmly established that a solicitor engaged by a testator to draw up a will owes a duty to the beneficiaries of that will to undertake that task with reasonable care.166 A solicitor who fails to ensure that a will is drawn up in accordance with the testator’s intentions,167 or who fails to ensure that the will is duly attested,168 or who fails to take steps to ensure that purported gifts in the will are effective,169 will be liable to any disappointed beneficiaries. Gummow J in Hill v Van Erp identified a ‘complex of factors’ that combine to bring into existence a solicitor’s duty of care to a beneficiary, namely that the engagement of the solicitor was designed to enhance the economic position of the intended beneficiary, the solicitor exercised control over the realisation of the testator’s intentions, and there was a close connection between the solicitor’s conduct and its effect on the intended beneficiary.170 Also important is the fact that a solicitor embarks on the task of drawing up a will ‘knowing that the beneficiary is wholly dependent upon his carefully carrying out his function’.171 In Ross v Caunters, Sir Robert Megarry VC said that ‘There is no question’ that the defendant solicitors could fairly have been expected to contemplate the plaintiff beneficiary as a person likely to be affected by any lack of care on their part.172

E. Solicitors and Opposing Parties As a general rule, solicitors representing a party in hostile litigation do not owe a duty of care to an opposing party. It has, however, been said that an exception to this rule arises where there is a specific assumption of responsibility.173 The Court of Appeal in Elguzouli-Daf v Commissioner of the Police of the Metropolis174

165

Capita Alternative Fund Services v Drivers Jonas [2011] EWHC 2336 (Comm). Ross v Caunters [1980] Ch 297; White v Jones (n 7); Hill v Van Erp (1997) 188 CLR 159; Walker v Geo H Medlicott & Son [1999] 1 WLR 727; Carr-Glynn v Frearsons [1999] Ch 329. 167 White v Jones (n 7) (no will drawn up before testator’s death, despite testator’s instructions); Walker v Geo H Medlicott & Son [1999] 1 WLR 727 (will allegedly did not include devise of house intended by the testator). 168 Ross (n 166); Hill v Van Erp (n 166). 169 Carr-Glynn v Frearsons (n 166). 170 Hill v Van Erp (n 166) 234. 171 White v Jones (n 7) 275 (Lord Browne-Wilkinson). 172 Ross (n 166) 308. 173 Elguzouli-Daf v Commissioner of the Police of the Metropolis [1995] QB 335 (CA) 348 (Steyn LJ). 174 ibid. 166

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maintained that this was the basis on which Welsh v Chief Constable of Merseyside Police175 was decided. In Welsh, a Crown Prosecution Service (CPS) solicitor agreed to inform the Magistrates’ Court that the plaintiff ’s charges in that court had already been taken into account in sentencing in the Crown Court. The CPS solicitor failed to carry out this task, and the plaintiff was arrested and held in custody for not answering his bail at the Magistrates’ Court. The CPS was held to owe the plaintiff a duty of care. Fundamental to this conclusion was the plaintiff ’s reliance on the CPS to carry out the task it had agreed to undertake. Because the CPS solicitor had agreed to notify the Magistrates’ Court that the plaintiff ’s charges in that court had already been taken into account, the plaintiff did not expect to have to answer his bail and did not take any steps himself to inform the Magistrates’ Court of the developments. The plaintiff in Welsh could easily have protected his own position, but the CPS solicitor’s conduct meant that he did not do so. In Al-Kandari v J R Brown & Co,176 the defendant solicitors represented a husband in a custody battle and agreed to hold the husband’s passport to prevent the husband fleeing the country with his children. The defendant was held to owe a duty of care to the plaintiff wife to ensure the passport remained in its possession. It was significant that, if the solicitors had not agreed to hold the husband’s passport, the plaintiff would have requested someone else, such as the court, a bank, or an independent firm of lawyers to do so to prevent the husband obtaining the passport and absconding overseas with the children.177 The solicitors’ acceptance of the task of safeguarding the passport meant that the plaintiff did not take other measures to protect herself from the harm which eventuated. While the solicitors held the husband’s passport, they had almost total control over the risk of harm to the plaintiff and the plaintiff was heavily dependent on their carrying out their task with reasonable care.

F. Safety Regulation There have been a number of cases where a quasi-regulatory sporting body has been held to owe a duty of care in relation to the safety of participants on the basis of assumption of responsibility. In Watson v British Boxing Board of Control Ltd,178 the defendant Board was held to owe a duty to professional boxers to take reasonable care in setting the rules for boxing matches to ensure that immediate and effective medical attention would be provided where required. In Wattleworth v Goodwood Road Racing Co Ltd,179 the Motor Sports Association, the national

175 176 177 178 179

Welsh v Chief Constable of Merseyside Police [1993] 1 All ER 692. Al-Kandari v J R Brown & Co [1988] QB 665 (CA). ibid 676 (Bingham LJ). Watson v British Boxing Board of Control Ltd [2001] QB 1134 (CA). Wattleworth v Goodwood Road Racing Co Ltd [2004] EWHC 140 (QB).

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governing body for motor sports in the UK, was held to owe a duty to users of the Goodwood motor racing circuit to take reasonable steps to ensure that the circuit was safe. And in Perrett v Collins,180 the Popular Flying Association, which arranged for inspections of hobby aircraft to ensure that they were fit to fly, was held to owe a duty of care to passengers of inspected aircraft. In each of these cases, the defendant sporting body was closely involved in, and had considerable control over, safety measures. The British Boxing Board imposed rules regarding medical assistance with which all promoters of professional boxing matches had to comply.181 The Motor Sports Association’s representatives conducted multiple inspections of the Goodwood circuit and made a number of substantive recommendations as to safety improvements.182 The inspectors provided by the Popular Flying Association were closely involved in the process of constructing the hobby aircraft they inspected and the aircraft could not be flown without the Association issuing a certificate for fitness for flight.183 An important consequence of this close involvement and control was that the defendant in each of these cases influenced the conduct of someone else who had a role in relation to the claimant’s safety. In Watson, the Board’s rules ‘delimited [the] obligations’ of the match promoters;184 in the absence of the Board’s intervention, the promoters would probably have been responsible for taking steps in relation to boxers’ safety.185 In Wattleworth, the operators of the Goodwood circuit relied on the advice provided by the Motor Sports Association and would have followed whatever suggestions were made by the Association.186 Also relevant to each case was the defendant’s knowledge that participants such as the claimant would be relying on them to look after their safety,187 although the participants might not be aware of the precise role played by the defendant in relation to safety measures.188 This expectation of reliance was traced to the defendants’ superior knowledge in relation to safety measures, as compared to the claimants themselves or to others who could have taken steps to protect the safety of the claimants. So, for example, the court in Watson referred to the fact that boxers would be unlikely to have an innate or well-informed concern about safety,189 and the court in Wattleworth observed that the Association was the ‘acknowledged expert’ in relation to safety, to whom others would defer.190 The position of the Motor Sports Association in Wattleworth was contrasted with that of the Fédération Internationale de L’Automobile (FIA), the 180 181 182 183 184 185 186 187 188 189 190

Perrett v Collins [1999] PNLR 77. Watson (n 178) [29], [79]–[80], [87]. Wattleworth (n 179) [120]. Perrett (n 180) 82 (Hobhouse LJ). Watson (n 178) [29]. ibid [78], [87]. Wattleworth (n 179) [120]. Watson (n 178) [87]; Wattleworth (n 179) [118], [120]; Perrett (n 180) 106 (Swinton Thomas LJ). Wattleworth (n 179) [118]. Watson (n 178) [85]. Wattleworth (n 179) [87], [106].

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international association of national automobile clubs, which was held not to owe Goodwood circuit users a duty to take reasonable care of their safety. In coming to this conclusion, Davis J noted that the FIA had considerably less involvement with and less knowledge of the Goodwood circuit; that its role was limited to considering use of the track for international events and everyone understood that its role was so limited; and that its code indicated that responsibility for circuit safety was left to national associations, such as the Motor Sports Association.191 Thus, the key features of control and expectation of reliance that underpinned a duty of care on the part of the Association were absent when it came to the FIA. An analogous case in a non-sporting context is Chandler v Cape plc,192 where a parent company was held to owe a direct duty of care to the employees of its subsidiary to take reasonable care with respect to their safety at a worksite riddled with asbestos. The Court of Appeal in Chandler identified similar factors to those in the sporting cases: the parent company had a practice of intervening in operations of its subsidiary; it had actual knowledge of the presence of asbestos on the worksite; it had superior knowledge to its subsidiary regarding the risks of asbestos, having employed specialist medical advisers to research these risks; and it knew, or ought to have foreseen, that the subsidiary or its employees would rely on its using that superior knowledge for the employees’ protection.193

G. Police Informers The decision of the House of Lords in Hill v Chief Constable of West Yorkshire194 established that there will usually be insufficient proximity between the police and a potential victim of crime to give rise to a duty of care on the part of the police, unless it can be shown that the victim was at ‘special distinctive risk’195 and that therefore there was a ‘special relationship’ between the police and the victim. Subsequent police cases have latched onto the assumption of responsibility as a basis for the requisite ‘special relationship’. This is particularly evident in the police informer cases. It is now relatively well settled that the police owe a duty to take reasonable care with respect to the physical safety of informers. The issue was first considered at length by the Court of Appeal in Swinney v Chief Constable of Northumbria Police Force.196 Being a strike-out application, Swinney merely concluded that the duty of care was arguable, but when the matter was remitted to the Queen’s Bench Division for trial the reasoning of the Court of Appeal was applied to establish a

191 192 193 194 195 196

ibid [136]. Chandler v Cape plc [2012] EWCA Civ 525, [2012] 1 WLR 3111. ibid [80]. Hill v Chief Constable of West Yorkshire [1989] 1 AC 53 (HL). ibid 62 (Lord Keith). Swinney (n 5).

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duty of care.197 Most recently, the existence of such a duty was confirmed in An Informer v A Chief Constable.198 In Swinney, the plaintiff had called the police with information that identified a potential suspect in a murder investigation. During the call, the plaintiff emphasised that she was providing the information on a confidential basis and that she did not want the information to be traced back to her. The members of the Court of Appeal in Swinney concluded in separate judgments that it was arguable that the police owed a duty of care to the plaintiff. Hirst LJ emphasised the fact that the police knew of the violent and ruthless nature of the suspect and knew, or should have known, that the confidential information given by the plaintiff was very sensitive.199 Peter Gibson LJ referred solely to the fact that the police had assumed responsibility towards the plaintiff in finding that a special relationship arose between them.200 Ward LJ held that a sufficiently proximate relationship arguably arose because the police had assumed responsibility to preserve the confidentiality of the information, the plaintiff had relied upon that assumption of responsibility, and failure to maintain confidentiality would expose the plaintiff to a special risk of damage from the criminal acts of others.201 While the judgments in Swinney differ somewhat on the question of proximity, it would appear that for Hirst LJ and Ward LJ at least, reliance and the plaintiff ’s vulnerability were central to the conclusion that the requisite ‘special relationship’ existed between the police and the plaintiff. Once the plaintiff had given her information to the police, she had no choice but to rely on the police to take reasonable care to maintain the confidentiality of her identity and protect her from potential retribution from a suspected murderer.

H. Employment References Hedley Byrne involved a linear advice relationship between the defendant and claimant. A less straightforward relationship occurs where a person is requested to give advice to another, and the negligent advice causes loss to the subject of the advice rather than the recipient. In what circumstances will the giver of the advice owe a duty of care to the subject of the advice? In Spring v Guardian Assurance plc,202 the plaintiff had been authorised to sell life insurance policies on behalf of the defendants. After being fired from his job, the plaintiff sought to enter into business selling another insurance company’s 197 Swinney v Chief Constable of Northumbria Police Force (1999) 11 Admin LR 811. It should also be noted that when the matter was remitted to the Queen’s Bench Division, the Chief Constable made a concession that a duty of care was owed to the plaintiff to avoid unnecessary disclosure of the information she had provided. 198 An Informer v A Chief Constable [2012] EWCA Civ 197, [2013] QB 579. 199 Swinney (n 5) 478–79, referring back to 473–74. 200 ibid 485. 201 ibid 486. 202 Spring (n 5).

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policies. The latter company sought a reference for the plaintiff from the defendants. The reference was negligently prepared and was highly critical of the plaintiff; the plaintiff unsurprisingly was not hired. The House of Lords held (Lord Keith dissenting) that the defendants owed a duty of care to the plaintiff in the preparation of the reference. Lord Goff applied an assumption of responsibility analysis, while the other majority judges only relied upon proximity. Between them, their Lordships enumerated a number of factors relevant to the finding of a duty of care. One was that a negligently prepared reference had potentially devastating consequences for the plaintiff ’s future employment prospects,203 and this was something of which the defendants should have been aware.204 Emphasis was also placed on the prior relationship between the defendants and the plaintiff: the reference related to events which occurred while the plaintiff was working for the defendants,205 and thus the defendant had special knowledge of the plaintiff ’s abilities.206 Lord Goff also observed that references are part of the currency of the modern employment market and are provided not just for the assistance of the recipient of the reference, but also for the assistance of the employee.207 Spring can be contrasted with Kapfunde v Abbey National plc.208 The plaintiff in Kapfunde applied for a job and, as part of the application process, completed a medical questionnaire. The prospective employer asked a doctor it employed parttime to assess the questionnaire. The defendant doctor concluded that, due to the matters disclosed by the plaintiff in the questionnaire, the plaintiff was likely to have a higher-than-average level of absence and was unsuitable for employment. The Court of Appeal in Kapfunde unanimously held that the doctor did not owe a duty of care to the plaintiff. There was no doctor–patient relationship between the defendant and the plaintiff; the doctor had never seen the plaintiff and had merely assessed her on the basis of the questionnaire.209 The plaintiff did not rely on the doctor’s report and had never seen it,210 and when the plaintiff submitted her questionnaire she probably did not know of the existence of the doctor.211 Millett LJ concluded that there was no pre-existing relationship between the doctor and the plaintiff from which a duty of care could be derived.212 This marked the case out from Spring, which ‘was firmly based on the pre-existing relationship 203

ibid 335 (Lord Slynn), 342 (Lord Woolf). ibid 345 (Lord Woolf). 205 ibid 342 (Lord Woolf). 206 ibid 319 (Lord Goff). 207 ibid. 208 Kapfunde v Abbey National plc [1998] ECC 440. See also Fegan v Police Service in Northern Ireland [2009] NIQB 51 where police who had investigated a social worker for sexual abuse but decided not to charge him were held not to owe a duty to the social worker when responding to a query from his employer about the status of the investigation. Gillen J held that the case fell within the ‘core principle’ of Hill v Chief Constable (n 194): a duty of care in this situation would lead to a defensive approach to policing in the area of child protection, which would be against the public interest. 209 Kapfunde (n 208) [11] (Kennedy LJ). 210 ibid [35] (Millett LJ). 211 ibid [11] (Kennedy LJ). 212 ibid [43]. 204

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of employer and employee’.213 According to Millett LJ, what led the House of Lords in Spring to find that a duty was owed to someone other than the person who received and relied on the reference was the fact that: A reference by an employer … is likely to be regarded as provided to the former employee who is subject of the reference for his use as a passport to future employment rather than as a service to any particular prospective new employer.214

In both Spring and Kapfunde, the defendant’s advice prevented the plaintiff from obtaining employment. The different outcome in Kapfunde shows that a claimant’s vulnerability to the consequences of a defendant’s negligent conduct is not enough to establish a duty of care. A pre-existing relationship which carries with it an expectation that the defendant will assist the claimant is required. This proposition is supported by observations made by Lord Browne-Wilkinson in X (Minors) v Bedfordshire County Council.215 In one of the cases considered in X (Minors), a local authority engaged social workers and psychiatrists to examine the plaintiff. The social workers and psychiatrists concluded that the plaintiff had been sexually abused and the plaintiff was taken into care. Lord Browne-Wilkinson rejected the argument that the social workers and psychiatrists owed a duty of care to the plaintiff, stating: The social workers and psychiatrists were retained by the local authority to advise the local authority, not the plaintiffs. The subject matter of the advice and activities of the professionals is the child. Moreover the tendering of any advice will in many cases involve interviewing and, in the case of doctors, examining the child. But the fact that the carrying out of the retainer involves contact with and relationship with the child cannot alter the extent of duty owed by the professionals under the retainer from the local authority. The Court of Appeal drew a correct analogy with the doctor instructed by an insurance company to examine an applicant for life insurance. The doctor does not, by examining the applicant, come under any general duty of medical care to the applicant. He is under a duty not to damage the applicant in the course of the examination: but beyond that his duties are owed to the insurance company and not to the applicant.216

V. Conclusion The core idea underlying the assumption of responsibility appears to be that the defendant has engaged in some conduct in relation to the claimant, or a class of persons including the claimant, which changes the legal relationship between the claimant and the defendant. The concepts of ‘assumption’ and ‘responsibility’ are, 213 ibid [40]. The outcome can also be explained on the basis of a conflict of duties; see A Robertson, ‘Policy-based Reasoning in Duty of Care Cases’ (2013) 33 Legal Studies 119, 126. 214 Kapfunde (n 208) [42]. 215 X (Minors) v Bedfordshire County Council [1995] 2 AC 633 (HL). 216 ibid 752.

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however, sufficiently ambiguous that it is far from clear what kind of action is required on the defendant’s side to amount to an assumption, or what precisely it is that the defendant is supposed to have assumed. It is overwhelmingly clear from the cases that we are not concerned here with voluntarily assumed obligations. Nor can we say that the defendants in all of the relevant cases have chosen to enter into a relationship with the claimant in which care can reasonably be expected. What characterises the assumption of responsibility cases is simply that the defendant has accepted a role, or embarked on a task, in which the claimant is so closely and directly affected by the defendant’s acts and omissions that the defendant ought to have the claimant in contemplation when considering whether and how to act. The assumption of responsibility is not, therefore, a distinctive category of obligation, but a loosely defined subset of proximity. What is crucial is not the undertaking made by the defendant, but (a) the nature of the relationship that is entered into, (b) what may reasonably be expected of the defendant in that relationship and, (c) most importantly, the potential effect of the defendant’s conduct on the claimant. It has been said that Lord Atkin was wrong to claim in Donoghue v Stevenson that there must be and is a general conception of duty, because Hedley Byrne revealed or reminded us that there is not one general conception of duty, but at least two: the neighbour principle and the assumption of responsibility.217 The analysis here suggests that in fact Lord Atkin was right. The assumption of responsibility is not a distinctive category of obligation, but simply a particular manifestation of the neighbour principle.

217

Mitchell (n 2) 197.

4 The Basis of the Hedley Byrne Action ALLAN BEEVER

I. Introduction Seeing the wood for the trees is one of the main challenges lawyers face. Especially in areas dominated by case law there are so many trees and so tremendous an amount of energy must be spent navigating one’s way through them, that the shape of the forest can easily be overlooked. On occasion, this difficulty can lead judges and scholars to commit themselves to positions that a broader focus would reveal to be untenable. Understandings of the action based on Hedley Byrne & Co Ltd v Heller & Partners Ltd1 is one such area.2 In fact, in this case there are three sources of disorientation; three ideas used as an aid to navigation here and elsewhere, but all mistaken. The first is the notion that actions based on Hedley Byrne belong to the law of negligence and are therefore somehow based on the neighbour principle enunciated by Lord Atkin in Donoghue v Stevenson.3 The second is the idea that the distinction between tort and contract is a distinction between an area of law in which obligations are imposed and one in which obligations are assumed. The third confusion is the belief that promises or agreements are legally binding only if obligations are reciprocated, ie the notion that legally binding agreements require consideration. Though all of these ideas have been much criticised, the law is nowhere near close to repudiating them. In fact, they continue to form part of the bedrock of many lawyers’ conceptions of the law of obligations. 1

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) (‘Hedley Byrne’). It is of course clumsy to refer to this action as ‘that based on Hedley Byrne’, but no better label is available in this context. The action is usually labelled ‘negligent misrepresentation’ or ‘negligent misstatement’, but, as we will see, those labels are misleading as the action does not belong to the law of negligence. In fact, it does not require negligence and does not even necessarily rely on any misrepresentation or misstatement. Nor is it any better to label it an action based on an assumption of responsibility. This is because, as we will also see, not all actions based on an assumption of responsibility are Hedley Byrne-type actions. In my view, the action ought properly to be called ‘breach of contract’, but I will not (quite) argue for that position here. See, however, David Campbell’s contribution to this volume (Chapter 5). 3 M’Alister (or Donoghue) (Pauper) v Stevenson [1932] AC 562 (HL Sc). 2

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Because of this triangulation of misunderstanding, the action for negligent misrepresentation has been and continues to be bewildering. For instance, I have been told (in confidence, naturally) by a district court judge in New Zealand that in the light of the leading authorities in this area, he has no idea how to decide cases of this kind. He has my sympathy. As Andrew Robertson and Julia Wang make abundantly clear in their chapter in this volume, the case law is full of contradictory commitments. In fact, individual judgments are frequently committed to inconsistent views. The appropriate conclusion to draw from this is that there is comparatively little to be gained by examining judicial pronouncements in this area: support for and rejections of all views flourish. Two models have been suggested for understanding the Hedley Byrne action. The first maintains that these cases properly belong to the law of negligence. For this reason, we can refer to this as the negligence model. It comes in two flavours. One holds that liability in this area is firmly based on the neighbour principle and therefore insists that reliance on the notion of assumption of responsibility be abandoned in this area of the law4 or at least interpreted to be consistent with ordinary negligence principles.5 The other view allows assumption of responsibility to play a role in determining liability, whether in conjunction with ordinary negligence principles or as an additional ‘control mechanism’ on liability (the negligence plus model).6 The alternative model, what we can call the contract model, maintains that in these cases the defendant’s liability is based on an assumption of responsibility to the plaintiff, where the ordinary principles of the law of negligence are irrelevant.7 On this view, the action is not correctly characterised as belonging to the law of negligence or to tort law. Rather, the action is contractual in nature. The aim of this chapter is to demonstrate the clear superiority of the contract model over its rival. It does so by examining each of the three confusions listed above and demonstrating how they undermine our understanding of the Hedley Byrne action. When these confusions are lifted, the basis of liability in (and only in) the defendant’s assumption of responsibility to the plaintiff will be clear. Before that investigation can begin, however, it is necessary to deal with an important preliminary issue. We must identify the subject matter of our investigation and the general nature of the liability that surrounds it.

4

See, eg, Robertson and Wang (Chapter 3) and Witting (Chapter 9). See, eg, the ‘deemed assumption of responsibility’ approach promoted by the New Zealand Court of Appeal in AG v Carter [2003] 2 NZLR 160 (CA), examined later in this chapter. 6 See, eg, Canadian National Railway Co v Norsk Pacific Steamship Co Ltd [1992] 1 SCR 1021, 1153. 7 This is the same model referred to as the assumption of responsibility model in A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing, 2007) ch 8, however I now regard that label as potentially misleading as it may suggest a commitment to the negligence plus model. For other supporters of the contract model, see MP Gergen, ‘Negligent Misrepresentation as Contract’ (2013) 101 California Law Review 953 and David Campbell’s contribution to this volume (Chapter 5). 5

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II. Identifying the Hedley Byrne Action We must first resist the temptation to think that our subject matter concerns any case in which a court has cited Hedley Byrne or utilised the phrase ‘assumption of responsibility’. Because of the confusion surrounding this area of the law, such citations and references abound, but many of the cases that contain them fall outside the scope of this investigation.8 It will be more utile to return to Hedley Byrne itself in order to identify its most salient features. Because its facts are easier to deal with, it will help also if we consider another leading case: Caparo Industries v Dickman.9 In Hedley Byrne, the plaintiffs requested from the defendant a report on the financial soundness of the company Easipower Ltd. The defendant replied: CONFIDENTIAL For your private use and without responsibility on the part of this bank or its officials. Dear Sir, In reply to your inquiring 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 Ltd.10

In reliance on this report, the plaintiffs placed forward advertising orders for Easipower with other third parties, for which the plaintiffs were personally liable. Easipower later went into liquidation and the plaintiffs suffered loss as a result of being unable to recover the costs of the orders from Easipower. In Caparo, the defendant auditors prepared a report on a company to be used at a meeting of that company’s shareholders. In reliance on information contained in the report, the plaintiffs invested in the company. In fact, the company was in significantly worse financial shape than the report indicated and the plaintiffs suffered loss as a result. It is first important to pay attention to the injuries said to have been suffered by the plaintiffs in these cases. The decisive point is easiest to see with respect to Caparo. The plaintiffs purchased shares that were not worth what they believed the shares to be worth. Certainly, that is in some sense a loss, but what is crucial

8 A great many of those examined by Robertson and Wang in Chapter 3, for example, are not, on my understanding, cases relevant to this investigation. I am happy to accept the claim that these are ordinary negligence cases. 9 Caparo Industries v Dickman [1990] 2 AC 605 (HL). 10 Hedley Byrne (n 1) 468. See, however, the slightly different wording of this letter in the report of the trial, reproduced in the appendix to this volume.

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here is that this loss was no violation of the rights of the plaintiffs.11 It is important to be clear about the nature of this claim. It is not that the plaintiffs had no right to recover for the loss that they suffered (though that is often true).12 The point is that—as all contract lawyers know—purchasing something that is less valuable than one believes is not, without more, a violation of one’s rights. This must be compared with the situation in Donoghue v Stevenson. In that case, the allegations were that the defendant placed on the market a drink that contained a substance that gave the plaintiff gastroenteritis. This allegation itself maintains that the defendant violated the plaintiff ’s rights—the right here being the so-called right to bodily integrity. In Caparo, on the other hand, there is no corresponding right. The simplest way to reveal this is to imagine that the plaintiffs purchased the shares with banknotes. This assumption is adopted for demonstrative purposes only, as of course the plaintiffs did not do this. But this analysis reveals the legal structure of the transactions in question. Having done that, it is simple to apply the analysis to more realistic scenarios.

11 Note that this is not because I have a theory of rights according to which no such right exists. It is because, in the light of the argument that follows, it is an observable fact that the law recognises no such right. Also significant is that no reference to theories, such as corrective justice accounts of the law, is necessary to make this point (though a focus on corrective justice certainly helps to reveal it). A note on corrective justice and rights is pertinent at this point. In his contribution to this volume, Christian Witting maintains: ‘Much like a birthday sparkler, it would seem that the rights fad will eventually exhaust itself ’ (Chapter 9, text following n 12). One might imagine a now unremembered and unlamented classical philosopher, frustrated at the influence of Aristotle’s Nicomachean Ethics, scratching down something similar two-and-a-half thousand years ago. But were this ancient to be provided with a glimpse into the future, enabling him to observe that corrective justice theory was to enjoy the adherence of thousands of scholars, including many of the West’s more important thinkers, and to survive for millennia, we might imagine that he would wish to withdraw his statement with some embarrassment. (For the history of corrective justice theory, see I Englard, Corrective Justice and Distributive Justice: From Aristotle to Modern Times (Oxford, Oxford University Press, 2009)). In that light, it is interesting to note that Witting’s claim is advanced in the context of defending an understanding of tort law that shows no danger of rising to the level of a fad. The genuinely curious notion here is the peculiarly modern one that a law of civil wrongs can properly be analysed without reference to the plaintiff ’s rights or the need to correct violations of them. 12 In this area and elsewhere, much confusion is occasioned by failing properly to distinguish primary from secondary rights. Even where the plaintiff cannot recover, the claim is of course not that this is because he has no right to recover. That would be to say that the plaintiff has no secondary right because he has no secondary right and this is clearly circular. The claim is that the plaintiff cannot recover (ie has no secondary right to recover) because he has no right to the thing that he is said to have lost (ie had no primary right to the subject matter of the alleged loss). Though this notion is controversial, I submit that it is a perfectly ordinary idea. If our two-year-old smashes our eight-yearold’s toy, we might require her to make it up to him in some way, but not require her to do anything for our five-year-old despite the fact that he too regrets the loss of the toy. Why? Because it was our eightyear-old’s, not our five-year-old’s, toy. If our five-year-old asks why our two-year-old is saying sorry to our eight-year-old and not to him, we might say ‘Because she broke his toy, not your toy’. It is quite remarkable that legal scholars find these notions so difficult to understand—though that is in line with a general failure in this regard. See A Beever, Forgotten Justice: A History of Political and Legal Theory (Oxford, Oxford University Press, 2013). Let the children grow up and change the toy for a cable or a pipeline and you have Spartan Steel & Alloys Ltd v Martin & Co (Contractors) Ltd [1973] QB 27 (CA) and Caltex Oil Pty Ltd v The Dredge ‘Willemstad’ (1976) 136 CLR 529 (HCA).

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If we assume that the shares were bought with banknotes, then the plaintiffs naturally began with rights to those notes. They then chose to exchange the banknotes for shares. The key point here—a point that reveals a crucial difference from negligence cases—is that this exchange was consensual and thus entirely legal; ie there was here no violation of the plaintiffs’ rights to the banknotes. This is clear from the situation. The party from which the plaintiffs purchased the shares in no way violated the plaintiffs’ rights to the banknotes. That party received the notes in exchange for shares. It was an entirely legitimate transfer. But nor did the defendant violate the plaintiffs’ rights to the banknotes. The defendant did nothing to them at all. And in any case, in a situation of this kind, the plaintiffs’ complaint is that she suffered a certain quantum of financial loss,13 it is not that she was wrongly deprived of particular banknotes. Eventually the legitimately purchased shares lost value. Again, however, that is no violation of the plaintiffs’ rights in the banknotes. At this point, no such rights remain. Nor is it a violation of the plaintiffs’ rights in the shares. The rights to the shares entail no right to any particular value, or every fall in the share market would be a violation of every shareholder’s rights. The rights that the plaintiffs have to the shares are entirely unaffected by fluctuations in their value. On these assumptions, then, the loss that the plaintiffs are claiming is a loss over which the plaintiffs have no apparent right. This is not to deny that they lost something, the point is that they lost something that was not theirs. Nor is the point that the plaintiffs cannot recover. The point now is only that it is opaque how the defendant is said to have violated the plaintiffs’ rights. There has been no violation of the plaintiffs’ rights to the banknotes or the shares, so what wrong has the defendant done the plaintiff?14 Naturally, the assumption made in the previous paragraph fails to reflect commercial reality. But nothing significant changes when we take that into account. The analysis is unaffected if, say, the plaintiffs transferred a chose in action in return for the shares. Any violation of the plaintiff ’s rights remains opaque. It is for this reason that Hedley Byrne is usually characterised as a case involving pure economic loss. The concept of pure economic loss is the modern law’s defective proxy for identifying cases in which the notion that the defendant violated the

13 In fact, as David Campbell perceptively points out in Chapter 5, if one pays attention to the actions and intentions of the plaintiffs in relation to this transaction, or to the actions and intentions of parties similarly situated, it is hard to see how one could come to any other conclusion than that it is these parties, and not the defendants, who should bare the risk of subsequent loss. 14 One may suggest that the plaintiffs have a general right to be free of negligently caused economic loss. It must suffice for now to say that it is clear that the common law recognises no such right. As NJ McBride, ‘Rights and the Basis of Tort Law’ in A Robertson and D Nolan (eds), Rights and Private Law (Oxford, Hart Publishing, 2011) notes, theorists of my ilk owe an explanation as to why this right cannot exist (and I hope soon to provide one), but in an investigation such as this one (as well as that provided in Beever (n 7)) the theorist is entitled to take the law as he finds it, as it were arguendo, leaving these more philosophical justifications for a later date. Incidentally, however, part of the response to McBride can be found in n 12 above.

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plaintiff ’s rights is problematic, as the plaintiff appears to have no legal entitlement to the subject matter of the loss.15 It is important to see that the argument is not that the plaintiff cannot recover in these cases (because, say, the defendant did not violate her rights). On the contrary, on occasion the plaintiff can recover. The point is that, in order for liability to exist, it is not enough to establish what needs to be established for liability in the law of negligence. In Donoghue v Stevenson, it was enough to show that the defendant created a reasonably foreseeable risk of the plaintiff ’s injury, as that injury connected with the plaintiff ’s right to her body. In Caparo, on the other hand, demonstrating that the plaintiffs’ injuries were reasonably foreseeable was not sufficient, because those injuries involved the loss of something to which the plaintiffs had no apparent legal entitlement. Because of this, it was necessary that the plaintiffs demonstrate that the representation made by the defendant created a right in the plaintiffs upon which the plaintiffs could rely in bringing their action. That is entirely unlike Donoghue v Stevenson and the question we must ask ourselves is: How can the defendant’s representation create this right? We return to this matter below. Hedley Byrne is more difficult, but the situation is essentially the same as in Caparo. The plaintiffs placed forward advertising orders, committing themselves, and were unable to recover the costs of these orders from Easipower. As the placing of the orders was consensual, no legal wrong was committed at this point. The problem was that the plaintiffs believed that they would be able to recover these costs from Easipower, but the plaintiffs never had any right as against the defendant to do so.16 Again, we are left with the question: Where is the defendant’s violation of the plaintiffs’ rights? Again, the claim is not that the plaintiffs in these cases must not recover. It is that, in order to recover, the plaintiffs must demonstrate that the representation made by the defendant created a right in them upon which they can rely in bringing their action. And again it is important to stress the divergence between this and cases such as Donoghue v Stevenson. Take the following three examples. The first is Palsgraf v Long Island Railroad Co.17 The plaintiff suffered personal injury when the defendant’s employees dislodged a package carried by a third party that contained fireworks, triggering an explosion that caused scales to fall onto her. The second case is Donoghue v Stevenson. The third is Hedley Byrne. The first two cases are usually grouped together. We might call them ordinary negligence cases. The third is thought to belong to a different category, what is generally called negligent misrepresentation or misstatement cases. But it is possible to

15 Beever (n 7) 243. Note again that the problem is that the plaintiff is claiming that she lost something to which she never had a right; the problem is emphatically not that the plaintiff has no right to recover. 16 Of course, they had rights against Easipower, but those rights were impotent due to Easipower’s liquidation. 17 Palsgraf v Long Island Railroad Co 162 NE 99 (NY CA 1928).

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group them differently. In the first case, the plaintiff was simply standing, waiting for a train, when injury was inflicted on her. In both of the last two cases, on the other hand, the plaintiffs were injured as a result of their decisions to rely on explicit or implicit representations made by the defendant. In Donoghue v Stevenson, the defendant was (potentially) liable because he manufactured and released onto the market a product intended to be consumed and the plaintiff relied on the (partly implicit) representation that it was potable. She could not have succeeded had the item been marketed as rat poison, for instance.18 So why, then, do we not group Donoghue v Stevenson and Hedley Byrne together? Why do we not think that Donoghue v Stevenson is a Hedley Byrne type, a detrimental reliance, a negligent misrepresentation case?19 We are right to group Palsgraf and Donoghue v Stevenson together and to distinguish Hedley Byrne. This is because, though detrimental reliance was essential in Donoghue v Stevenson, though the defendant’s representation that the ginger beer was potable was essential to liability, that representation did not create the right in the plaintiff upon which she needed to rely. In both Palsgraf and Donoghue v Stevenson, the right was the right to bodily integrity, a right that existed independently of any representation made by the defendant, in fact independently of the defendant’s actions. The plaintiffs possessed this right from birth. But in Hedley Byrne and like cases, the plaintiff can recover only if she can show that the defendant’s representation created a right in her that grounds her entitlement to the thing that she is said to have lost. This makes these cases totally different from Palsgraf and Donoghue v Stevenson. Again, this is dimly reflected in the law’s general understanding, which holds that Palsgraf and Donoghue v Stevenson are personal injury cases whereas Hedley Byrne involves pure economic loss. These are the law’s defective proxies for identifying cases in which the plaintiff ’s primary right is not in question and cases in which the right is opaque. These, then, are the Hedley Byrne cases. They are cases in which the plaintiff ’s claim against the defendant is problematic because the loss for which the plaintiff is attempting to recover is a loss of something to which the plaintiff has no right independently of the defendant’s representation. Because of this, the plaintiff must claim that the representation generated a right in her, a right that was then violated. In neither Hedley Byrne nor Caparo could the plaintiffs do this. In Hedley Byrne, this was chiefly because of the defendant’s insistence that its report was provided 18 And consider the situation had the ginger beer been marked as possibly containing decomposing remains of snails. If that sounds too far-fetched to take seriously, it should be remembered that fact is often stranger than fiction. I know of someone who quite intentionally brewed beer out of locusts, for instance. 19 Note that in this volume Robertson and Wang maintain that liability in Hedley Byrne cases is imposed when ‘the defendant has accepted a role or embarked on a task in which the claimant is so closely and directly affected by the defendant’s acts and omissions that the defendant ought to have the claimant in contemplation when considering whether and how to act’ (Chapter 3, text at n 116). This encompasses Donoghue v Stevenson (n 3) as well as a great many other ‘ordinary’ negligence cases.

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‘without responsibility’.20 In Caparo, it was because the plaintiffs relied on the defendant’s report for a purpose other than that for which the defendant prepared it. This is to say that the right in question was not given by the defendants to the plaintiffs, and for that reason the plaintiffs failed. This is totally unlike Donoghue v Stevenson. In the following, then, we are interested only in these cases: cases in which the right upon which the plaintiff must rely could only be a creation of the defendant’s representations or actions. Other cases involving representations, or where judges have mentioned Hedley Byrne or notions such as assumptions of responsibility are not relevant.

III. The Negligence Plus Model As many proponents of the negligence model recognise, the negligence plus version of that model is a non-starter. This is because, in the presence of a genuine assumption of responsibility, the remainder of the negligence model is otiose. Accordingly, in practice this theory collapses into one of the alternatives. If the defendant genuinely assumed responsibility to the plaintiff but then failed to live up to that responsibility, the assumption itself must be sufficient for liability. It merely wastes time and confuses the pertinent issues to examine the elements of the negligence enquiry such as the duty of care. In short then, the negligence plus model is conceptually unstable, because the plus renders the negligence redundant. In this way, this version of the negligence model collapses into the contract model. Conversely, if we deny that a defendant needs genuinely to assume responsibility in order to be liable under Hedley Byrne, then we are not really dealing with the negligence plus model. This is the ordinary negligence model in disguise, where use of the notion of an assumption of responsibility is occluding the real basis of the liability. This helps to explain why many proponents of the negligence model are so hostile to the employment of the concept of assumption of responsibility in this context.21 It is the ordinary negligence model that deserves our attention.

20 Robertson and Wang insist that it is wrong to hold that Hedley Byrne would have been decided in favour of the plaintiffs had the disclaimer not been made. That may be right, but it is nevertheless clear that the disclaimer was a sufficient condition for negativing liability in the case, and that is not how disclaimers function in the law of negligence (Chapter 3, text at n 11). See Beever (n 7) 287–91. 21 Again see Robertson and Wang (Chapter 3) and Witting (Chapter 9).

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IV. Negligent Misrepresentation and the Neighbour Principle We turn now to the three confusions listed at the beginning of this chapter. We begin with the notion that liability in this area is based on Lord Atkin’s neighbour principle. On the face of it, this is an attractive view. For one thing, it fits with our ordinary understanding of the place of this action within the law of obligations. The Hedley Byrne action is usually labelled ‘negligent misrepresentation’ and is thought of as a part of the law of negligence. Moreover, on this view, the law of negligence can be seen to be a unified field of liability. As Robertson and Wang put the point in this volume: It has been said that Lord Atkin was wrong to claim in Donoghue v Stevenson that there must be and is a general conception of duty, because Hedley Byrne v Heller revealed or reminded us that there is not one general conception of duty but at least two: the neighbour principle and the assumption of responsibility. The analysis here suggests that in fact Lord Atkin was right. The assumption of responsibility is not a distinctive category of obligation, but simply a particular manifestation of the neighbour principle.22

The problem with this position is that it just cannot be right. No matter how well it might be thought to fit the law of negligence, no matter how well it may appear to fit the case law dealing with the action under consideration, it must be wrong. This is because, in the relevant cases, there cannot be liability for ‘accept[ing] a role or embark[ing] on a task in which the claimant is so closely and directly affected by the defendant’s acts and omissions that the defendant ought to have the claimant in contemplation when considering whether and how to act’. Imagine that an economist is interviewed on television and claims that the economy is in good shape and that the share market is likely to do well over the next 18 months. This interview encourages some people to invest in shares. In fact, however, the market does not do at all well and these investors lose their money. Can they sue the economist? We all know that they cannot, regardless of the level of care taken by the economist. Courts will hold that the economist owed no duty of care to the investors. But why not when it was entirely foreseeable that people would rely on the economist’s forecast? Of course, at this point we can play with our definition. Perhaps, for instance, we might say that the investors were not sufficiently closely or directly affected by the forecast to be owed a duty of care. Perhaps one might claim that it is not the case that the economist ought to have had the investors in mind. But there are serious problems with these responses. First, adopting this strategy is tantamount to admitting that the neighbour principle is in operation here in form only. In a case involving personal injury or

22

Robertson and Wang (Chapter 3, text at n 217).

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property damage, what matters is whether injury to the plaintiff was a reasonably foreseeable consequence of the defendant’s actions. Thus, in the odd cases in which this terminology is used in this context, the plaintiff is said to have been closely and directly affected by the defendant’s behaviour if her injury was a reasonably foreseeable consequence of that behaviour. But in Hedley Byrne cases, though the plaintiffs’ injuries may be reasonably foreseeable, it is frequently insisted that they were nevertheless not sufficiently close and direct results of the defendant’s actions. In other words, this is an unreal application of the neighbour principle, because we have changed the definition of a neighbour. Moreover, we need to ask why we want to say that the investors in our case are insufficiently closely and directly affected by the economist’s acts when their injuries are entirely foreseeable. Contract model theorists have a ready answer for this: it is because the economist did not assume responsibility to the investors in relation to their investments. But what is to be said on the opposing view? Similarly, if we are to say that it is not the case that the economist ought to have had the investors in mind when he made his forecast, what is the basis for this assertion? This is particularly problematic because, as a matter of personal ethics, surely the economist ought indeed to have borne in mind that people were likely to rely on his forecast. It is sometimes suggested that the investors could not recover because their reliance on the economist’s advice is not reasonable.23 But this again is a departure from the neighbour principle. Unreasonable reliance is often reasonably foreseeable and the negative results of such reliance recoverable. What is more, it is quite wrong to suggest that the reliance is unreasonable. There is simply nothing unreasonable about it. Of course, it might not be reasonable to rely solely on such advice, but that is not the issue. The issue is only whether the economist’s advice was a cause of the decision to invest.24 Likewise, though some might suggest that it would not be fair, just and reasonable to impose a duty of care in this circumstance, this position is conclusory. Why should no duty be imposed if not because the defendant did not assume responsibility to the plaintiffs? Nor can the claim that the defendant’s duty of care rests on a requirement of proximity be taken to show that these actions are negligence actions like any other. First, in line with the argument just examined, in negligence cases such as Donoghue v Stevenson, proximity refers to reasonable foreseeability. As we also saw, however, in Hedley Byrne-type cases, reasonable foreseeability is insufficient for the existence of a duty of care. Saying that proximity operates in both areas of the law, then, is misleading. The words do not matter. What matters is the concepts to which they refer. It proves nothing that courts use the same word in each context; the issue is whether they utilise the same concepts. They do not.

23

eg AG v Carter (n 5). Routinely, people rely in part on statements of this kind in relation to the property market in order to determine whether to invest. 24

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In response to this, some scholars have provided an extremely abstract account of proximity capable of accommodating all of the approaches in what passes for the law of negligence.25 The argument, then, is that proximity is utilised in both Donoghue v Stevenson and Hedley Byrne-type cases, it is just that context demands that proximity be defined in one way in the former cases and in another way in the latter cases. But what is the content of this concept, the concept said to hold the law of negligence together? At times, the answer is overtly farcical. Thus, in Canadian National Railway Co v Norsk Pacific Steamship Co Ltd, McLachlin J maintained that proximity includes, among other things, ‘the relationship between the parties, physical propinquity, assumed or imposed obligations and close causal connection’.26 In other words, proximity could be anything. In that sense, of course proximity is relevant to the Hedley Byrne-type cases, but in that sense it is relevant to every case in every area of the law. There is no concept of proximity here at all. The general point can be illustrated with the aid of an example. Imagine a jurisdiction in which courts had determined that an action in negligence was available when the parties were in a relationship of proximity and that such a relationship would exist, inter alia, when one person had been unjustly enriched at another’s expense. Lawyers in this jurisdiction insist that this action belongs to the law of negligence. Of course, in one way they are right. But we can recognise that ultimately they are wrong. This is an action for unjust enrichment that has for some reason been hidden under the form of the law of negligence. This is what happened to Hedley Byrne. McLachlin J almost tells us this: in the relevant cases, proximity is concerned with ‘assumed … obligations’.27 Of course, this entails that proximity is relevant to Hedley Byrne-type cases, but it achieves this by incorporating the contract model within the ‘concept’ of proximity. That this could in any way reconcile the Hedley Byrne action with the operation of the law of negligence is no more than an illusion. Alternatively, one might appeal to some policy reason or other to undermine liability. Perhaps one might claim, for instance, that the economist was providing a socially valuable service that would be discouraged in future if liability were imposed in this circumstance.28 But this is clearly a desperate move. For one thing, the position of the law is not that in principle the economist owed a duty of care to the public but that, for policy reasons, this is cut back. There is in principle no legal duty owed here at all. For another, it could rescue the notion that this action is based on the neighbour principle only by so expanding that principle so as to include any apparently relevant policy concern, as to rob the principle of any definite content. Of course, that would show that any area of liability could be analysed in terms of the neighbour ‘principle’, including this one, but that is precisely the theory’s weakness. 25 26 27 28

See, eg, Witting (Chapter 9). Canadian National Railway (n 6) 1153. ibid. See also Sutherland Shire Council v Heyman (1985) 157 CLR 424, 497–98 (Deane J). cf Hercules Managements v Ernst & Young [1997] 2 SCR 165.

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In general, the Hedley Byrne action can be reconciled with the law of negligence only by taking the concepts of that law—neighbourhood, proximity, etc—and expanding their scope so that, at the end of the process, they have little or no meaning. This has two seriously deleterious consequences. The first is that the nature of the Hedley Byrne action is obscured. The second is that, by expanding these concepts, our understanding of the law of negligence itself is damaged. We have reached the position now where it seems that little in the law of obligations is in principle incapable of being understood as a negligence action, as the central concepts of that action have become so incredibly broad in the mainstream accounts. The disaster that is the modern law of negligence is the result. Of course, it has never been thought that liability for statements could be based on reasonable foreseeability alone. But that is just another way of saying that the neighbour principle is not the determination of liability in this area of the law. Instead, a significant range of control mechanisms must be added. These include the notion that ordinarily a defendant will be liable only if he has some special skill in the area of the advice, that liability will not be imposed for representations made during casual conversations, that the plaintiff ’s reliance must be not merely reasonably foreseeable but also reasonable, that liability can be negatived by the defendant’s unilateral disclaimer, that the plaintiff can recover only if the advice upon which she relies was made for her benefit and she relies on it in accordance with the purpose for which it was made, and so on. This ought immediately to have alerted us to the inappropriateness of the negligence model. There is something very odd about the claim that an action is based on consideration a, but that considerations b, c, d, e, f and so on, though in tension with a, must also be taken into account. That is about the best evidence one could have that the action is not, in fact, based on consideration a, whatever the courts might be saying. Put simply, if the Hedley Byrne action were based on the neighbour principle, then we would not have needed so many control mechanisms. To put it the other way, the attempt to base the Hedley Byrne action on the neighbour principle requires the addition of a host of control mechanisms precisely because the neighbour principle is not the real basis of the action. In Hedley Byrne, having made the disclaimer, the defendant could not be liable. In Caparo, having made the report for one purpose, the defendant could not be liable for reliance on the report for other purposes. This has nothing to do with neighbourhood in the sense of that term elucidated by Lord Atkin in Donoghue v Stevenson. It has nothing to do with reasonable foreseeability. No amount of judicial pronouncements to the contrary could change this.29

29 Alternatively, of course, if courts begin to find those who reasonably foreseeably cause loss in these circumstances liable, then the view would have to change. But there is no evidence whatsoever of this occurring.

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V. Imposed and Assumed Obligations In AG v Carter, the New Zealand Court of Appeal maintained that ‘Concerns have been expressed about the appropriateness of the concept of assumption of responsibility … The potential difficulty is with the word “assumption”, which suggests a voluntary act. In tort obligations are imposed, not assumed, as they are in contract’.30 This view, though often relied on by courts and commentators, is completely inaccurate. The first point to be made in this context is that, even if we accept that obligations in tort are imposed rather than assumed, we cannot presuppose that actions based on Hedley Byrne genuinely belong to tort law in this sense. This matter will be revisited in the following section. The second point is that it is plain that tort law sometimes deals with assumed obligations. The cases examined in the following are ordinary negligence cases. They are not Hedley Byrne actions. Nevertheless, it is clear that they turn on obligations that exist because of a responsibility assumed by the defendant. A telling case in this context is Depue v Flateau,31 a decision of the Supreme Court of Minnesota. The plaintiff cattle buyer visited the defendant at about 5 pm or 5.30 pm on a winter’s evening. He decided that it was too dark to inspect the defendant’s cattle properly and asked the defendant if he could stay the night in the defendant’s house and inspect the cattle in the morning. The defendant refused. The plaintiff then conducted some other business with the defendant and was asked to stay for a meal. The plaintiff accepted. After the meal, the plaintiff suffered a fainting spell, again asked to stay the night, but was again refused. It was clear that the plaintiff was very unwell and unfit to travel through a Minnesota winter’s night. But he was ushered to his cutter by the defendant and left the defendant’s property. He later fell from his cutter and remained on the ground for the night. He was found close to death the next morning by a farmer and revived. The plaintiff suffered permanent injuries because of the cold. According to Brown J: In the case at bar defendants were under no contract obligation to minister to plaintiff in his distress; but humanity demanded that they do so, if they understood and appreciated his condition. And, though those acts which humanity demands are not always legal obligations, the rule to which we have adverted applied to the relation existing between these parties on this occasion and protected plaintiff from acts at their hands that would expose him to personal harm. He was not a trespasser upon their premises, but, on the contrary, was there by the express invitation of Flateau, Sr. He was taken suddenly ill while their guest, and the law, as well as humanity, required that he be not exposed in his helpless condition to the merciless elements.32

30 31 32

AG v Carter (n 5) [23]. Depue v Flateau 111 NW 1 (MN Minn SC 1907). ibid 3.

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It is impossible to explain the outcome of this case according to the view that obligations in tort are imposed and not assumed. The defendant in Depue v Flateau was entitled to turn the plaintiff away from the beginning, but having invited the plaintiff into his house, became responsible for him in a way he was not previously responsible. One could regard this as an imposed obligation, but it makes no sense to say that it was imposed rather than assumed. The obligation arose because of the defendant’s invitation to the plaintiff. It did not exist before that invitation. A similar case is the decision of the Supreme Court of Canada in Horsley v MacLaren.33 The defendant had invited a number of guests onto his boat. One of the guests fell into the water and drowned. It was alleged that the defendant had been negligent in manoeuvring his boat and that this had contributed to the two deaths. The majority in Horsley v MacLaren found that the defendant had not acted negligently, but all agreed that, had the defendant been negligent, he would have been liable. According to Laskin J, the reason for this was that: As owner and operator of a boat on which he was carrying invited guests, [the defendant] was under a legal duty to take reasonable care for [the] safety [of the passengers]. Having brought his guests into a relationship with him as passengers on his boat, albeit as social or gratuitous passengers, he was obliged to exercise reasonable care for their safety.34

In other words, in inviting the guests on board, the defendant came under an obligation to ensure their safety, an obligation that the defendant would not have possessed had he not entered into that relationship with the guests. The notion that obligations in tort are imposed rather than assumed can only damage our understanding of this case. Against this, one might maintain that the obligations in these cases are nevertheless imposed and not assumed. In Depue v Flateau, the imposed obligation is that if one invites another into one’s house then one must provide extra care for that person. In Horsley v MacLaren, the same rule was imposed with respect to boating. But if we say this, we might as well also say that obligations in contract are imposed: if one accepts an offer then one is bound, etc. Thus, the response undermines the supposed separation between tort and contract under examination.35 In their contribution to this volume, Robertson and Wang maintain in relation to Horsley v MacLaren that ‘The Supreme Court of Canada has held that a person who invites another onto his boat owes a duty to take reasonable care of the passenger’s safety’.36 They then quote from Laskin J’s judgment, including the following sentence: ‘[T]he employee or passenger, who falls overboard from whatever cause, should be entitled to look for succour to the operators of the ship because

33

Horsley v MacLaren [1972] SCR 441. ibid 461. 35 For the record, the claim made here is not that tort and contract cannot be distinguished. The point is only that these areas of the law cannot be distinguished by claiming that obligations in the former are imposed while they are assumed in the latter. There is a distinction between tort and contract, but this is not it. 36 Robertson and Wang (Chapter 3, text at n 131). 34

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of the necessary dependency on them for return to shore’.37 Robertson and Wang then conclude: Thus, what differentiates the boat operator from someone who simply comes across another person in need of rescue is that there is an antecedent relationship between the boat operator and his passenger in which the passenger is particularly vulnerable to the consequences of the boat operator’s action or inaction. As the final sentence in the above quote indicates [ie the sentence quoted above], it is not the boat operator’s undertaking but the passenger’s dependency that is the basis of the passenger’s entitlement.38

This position overlooks the fact that it was the defendant’s invitation that created the alleged vulnerability and dependency that the deceased had with respect to this defendant. It was the invitation that generated, in fact characterised, the ‘antecedent relationship’. The deceased was vulnerable and dependant because he was relying on the defendant, which he did because the defendant had assumed responsibility to him by inviting him on board. Here again we see the negligence model piggybacking on the model it sets out to reject. What is more, it is wrong to suggest that the invitation is necessary to the general vulnerability and dependency that existed for the deceased in this case. Imagine that the deceased in Horsley v MacLaren swam towards another boat and that the operators of that boat failed to conduct a rescue. Here, the deceased would have been dependant on and vulnerable to the operators of this vessel. But those operators would not owe any special obligation to conduct a rescue.39 Thus, their position would not be on a par with that of the defendant in Horsley v MacLaren, despite the fact that vulnerability and dependency is identical in each case.40 Incidentally,41 though it is sometimes said that these cases (properly understood at least) require detrimental reliance in order to be actionable, this point is irrelevant and, in any case, comes to nothing. There are four reasons for this. First, the supposed need for detrimental reliance does not show that an assumption of responsibility is inessential to liability in these cases. Whatever the restriction on damages, the invitation was a necessary condition for liability in Depue v Flateau, for instance. Secondly, the need for detrimental reliance in many cases is readily explicable in terms of assumption of responsibility. Often, it is the plaintiff ’s detrimental reliance for which the defendant has assumed responsibility. But that is not the case in Depue v Flateau or Horsley v MacLaren where, the third point,

37

Horsley (n 33) 461–62. The passage is italicised by Robertson and Wang (Chapter 3, text at n 131). Robertson and Wang (Chapter 3, text following n 131). 39 I do not say that they have no obligation at all to rescue. 40 I have expressed my views concerning the utility of the concept of vulnerability in this context in Beever (n 7) 194–95. In summary, vulnerability is an unhelpful concept, because there is absolutely no correlation between vulnerability and liability. It is very frequently the most vulnerable who cannot recover, for instance. 41 It is incidental to this discussion, because the cases now under examination are not Hedley Byrnetype cases. Nevertheless this issue is worth exploring, as there are misunderstandings in operation here that parallel misunderstandings of the Hedley Byrne action. 38

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detrimental reliance is quite irrelevant. The plaintiff in the latter case, for instance, did not have to prove that the deceased would have contracted with rescue services had he known that the defendant might manoeuvre the boat improperly, for instance. In these contexts, requiring the plaintiff to show detrimental reliance would be at best a charade, in reality absurd. Finally, in the sense in which detrimental reliance is always required, it is always required in contract as well. If the plaintiff ’s injury would have occurred in any case, then the plaintiff cannot recover for it in any area of the law. Often, the absence of ‘detrimental reliance’ in these cases actually shows that the defendant’s action was not a (but for) cause of the plaintiff ’s injury. Again, there is no evidence here that we are not dealing with assumed obligations. The importance of this discussion is that it undermines the notion that liability in Hedley Byrne-type cases cannot be based on an assumption of responsibility because in tort law responsibilities are imposed rather than assumed. The twofold response is that liability in Hedley Byrne is not properly understood as tortious and that, in any case, a great deal of liability in tort results from obligations that are assumed. As we have seen, there is even a sense in which this is true of Donoghue v Stevenson. In that case, the defendant would not have been liable had he not decided to manufacture ginger beer and present it to the market as potable. There is nothing to be gained from insisting that obligations in tort are imposed rather than assumed.42

VI. The Doctrine of Consideration and Hedley Byrne As is well known, other jurisdictions deal with Hedley Byrne-type cases in the law of contract. In Germany, for instance, Hedley Byrne itself, Caparo and other such cases would have appeared before the courts as breach of contract cases—or more accurately, they would likely not have appeared at all, as it would have been obvious that the plaintiffs had no chance of success. But the common law was unable to deal with the cases in this way because of a significant hurdle: the infamous doctrine of consideration. In Hedley Byrne, for instance, it was clear that as a matter of common law contract doctrine the plaintiffs could not bring a claim for breach of contract because, given that they had not provided consideration in return for the defendant’s report, no contract existed as between the parties. This is the third confusion mentioned at the beginning of this chapter. The doctrine of consideration entails that a contract exists only if both parties commit themselves in some way. In that sense, unilateral contracts are impossible. Notoriously, the consideration can be anything of legal significance. So, to take the classic example, offering a peppercorn in return for a house is good consideration.

42

See also R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007) 121–23.

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This is not an essay on the doctrine of consideration nor on contract law itself, but it is important here to make two interconnected points. Each point relates to one apparent implication of the doctrine: that agreements or promises made without consideration are not legally binding. The two points are that this implication is absurd and that this is the reason why we have the form of liability that we have misleadingly labelled negligent misrepresentation. The first point can be demonstrated by considering a hypothetical presented by Lord Devlin in Hedley Byrne. Imagine that ‘a defendant says to a plaintiff: “Let me do this for you; do not waste your money in employing a professional, I will do it for nothing and you can rely on me”’.43 Imagine, however, that though the plaintiff accepts, the defendant does not perform. Here, there must be liability, even in the absence of consideration passing from the plaintiff to the defendant. In fact, this point can be amplified. Imagine that I say to you ‘I promise to do this and I wish legally to bind myself to do so, despite the fact that you are giving me nothing in return’. How, in the face of this, could the law maintain that there is no obligation created unless you insist on providing me something in return, a something that could be entirely trivial such as a peppercorn, a toenail clipping or a pebble? In this light, at least as it applies in this context, the doctrine of consideration is revealed to be, frankly, silly. Something must be said about arguments defending the doctrine of consideration at this point. Speaking generally, these fall into two classes. The first partial defence maintains that the doctrine is a rough proxy for what really matters. The idea is that consideration offers evidence to show that the parties seriously intended to commit themselves.44 This defence is partial only because, as most proponents of this view are keen to stress, it is the intention that ought to matter and consideration is at best a rough guide as to its existence. Hence, most maintain that the doctrine ought to be replaced by that for which it is a proxy. Arguments that belong to the second class of defence of the doctrine attempt to show that there is something special about agreements made with consideration that those made without consideration lack. The most detailed such account is provided by Peter Benson,45 but it is possible immediately to respond to it, and without examining its content. There is a problem with the logic of this argument. Even if there are special reasons for enforcing agreements made with consideration, it would not follow that agreements made without consideration ought not to be enforced.46 And even if we accept that an area of law—let’s call it ‘contract’— should be reserved for dealing with agreements made with consideration, it would

43

Hedley Byrne (n 1) 531. eg SA Smith, Contract Theory (Oxford, Clarendon Press, 2004) 215–22. See also David Campbell’s contribution to this volume, which advances a similar view (Chapter 5). 45 P Benson, ‘The Idea of a Public Basis of Justification for Contract’ (1995) 33 Osgoode Hall Law Journal 273; P Benson, ‘The Unity of Contract Law’ in P Benson (ed), The Theory of Contract Law: New Essays (Cambridge, Cambridge University Press, 2001). 46 This is the fallacy of denying the antecedent. 44

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not follow that no other area of the law should deal with agreements made without consideration. We return to this point shortly. It is also useful to consider Mindy Chen-Wishart’s recent defence of the doctrine in this context.47 Chen-Wishart attempts to support the doctrine by arguing that abolition would lead to the enforcement of gratuitous promises and that this would be undesirable. She maintains, for instance, that the legal enforcement of gratuitous promises made in the ‘private domain’ would undermine levels of trust, respectful treatment and reciprocity between individuals.48 At more than one point she provokes us to imagine the consequences of allowing people to sue for the failure of promised presents to arrive. These examples are powerful, but the problem with Chen-Wishart’s argument is that it rests on a false dichotomy. One can agree that it would be wrong to enforce promises to give presents without thinking it wise to hold these promises enforceable if accompanied by a counterpromise to provide a speck of dirt, a pat on the head or a peppercorn, for example. In other words, the argument argues for something other than the doctrine of consideration. The false dichotomy is between retaining the doctrine of consideration on the one hand and enforcing (all, almost all?) gratuitous promises on the other. These are not the only options available. No one is suggesting that we abandon consideration and leave the law of contract otherwise untouched. As indicated above, many hold that the doctrine is a defective proxy for what really matters and that attention should be paid to what really matters rather than to this defective proxy.49 This calls for replacement, not mere abolition, of the doctrine of consideration and there is every reason to think that a suitable replacement will entail that a great many gratuitous promises will remain unenforceable.50 This point becomes most telling when Chen-Wishart comes to examine the position in jurisdictions that do not hold to the doctrine. The oft-made claim is that abolition of consideration would bring English law more into line with continental civilian legal systems. However, appearances belie the reality.

47 M Chen-Wishart, ‘In Defence of Consideration’ (2013) 13 Oxford University Commonwealth Law Journal 209. 48 ibid 220–25. 49 Note that this is consistent with maintaining that consideration ought to be the normal method for establishing the existence of a contract, as it is in civilian systems. The issue is whether consideration is essential. I agree, therefore, with David Campbell’s claim that consideration is required prima facie for liability in this area. 50 See also the claim in JW Neyers, ‘On the Right(s) Path’ (2008) 19 King’s Law Journal 413 that, according to the view advanced in Beever (n 7) 315, that the doctrine of consideration cannot be supported, this would entail that ‘a promise by X that she will pay Y £1 million is binding even if … Y never gave consideration for the promise and Y never changed his position to his detriment. A truly startlingly proposition!’. It needs to be explained, however, that my view is that X will have to pay Y £1 million in (at least roughly) the circumstances in which she would have to do so had she made the promise in Germany, France, Italy, Holland, Spain, Portugal, China, Japan, Brazil, Argentina or in most of the rest of the world. In fact, she will have to pay as she would had she made her promise in Quebec or, in my case, had I made such a promise one-and-a-half hour’s drive from where I was sitting when I first read Neyers’ review: in Scotland.

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In truth, civil law draws essentially the same line between gratuitous and reciprocal undertakings. Civil law includes gratuitous undertakings in the ambit of enforceable contracts but subjects them to a stringent formality requirement, unless they are ‘synallagmatic’ (ie consist of bilateral reciprocal undertakings). This is simply a mirror image of the common law position that an enforceable promise must be supported by consideration unless it is accompanied by the requisite formality.51

The focus on the enforceability of gratuitous promises has occluded the real issue. It is not how frequently such promises are enforced. It is whether the bar on enforcing promises made without consideration is appropriate. The civil law insists on formality requirements because it means to ensure that promises made where there was no intention for them to be enforceable do not rise to the level of contracts. That is importantly different from endorsing even the mirror image of the doctrine of consideration, which is at best a defective proxy for what the civil law is focused on. Chen-Wishart attempts to support her contentions by relying on Reinhard Zimmermann’s claim that: [T]o define the scope of donation, the German Code [uses], under negative auspices, what has traditionally been, in a positive version, the essential test for the enforcement of promises in the English common law; the absence of any agreed-upon recompense characterizes donations in Germany, the presence of bargain consideration provides the normal reason for enforcing a promise in England.52

First, it is not clear that it is appropriate to utilise Zimmermann’s work in this way. Zimmermann is concerned to show that laws of various jurisdictions possess a great deal of similarity at the level of structure, despite the differences of detail. Thus, Zimmermann is here stressing that legal outcomes in Germany and England are comparable, despite the fact that only the latter possesses the doctrine of consideration. That should not be taken as an endorsement of the doctrine itself. It is, for example, perfectly compatible with the claim that it is a defective proxy for the issues upon which the civil law focuses.53 Note also Zimmermann’s assertion that consideration is the (properly a) normal reason for enforcing promises in the common law, a position that implies, entirely correctly, that promises made without consideration are in fact enforced in the common law, though not through the law of contract; a point to which we will also return. Another problem with Chen-Wishart’s view is that the uncontroversial difference between the common and civil law as it relates to this chapter is important. As we have noted, in civilian jurisdictions, Hedley Byrne-type cases are regarded

51

Chen-Wishart (n 47) 231. R Zimmermann, The Law of Obligations: Roman Foundations of the Civilian Tradition (Oxford, Oxford University Press, 1996) 504–05 (citations omitted); Chen-Wishart (n 47) 231–32. 53 I wonder, for instance, how far removed David Campbell’s suggestion, made in his chapter in this volume, that consideration ought to be interpreted more flexibly would be from the civilian notion of causa. 52

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as contractual. In the common law, however, the doctrine of consideration has prevented this. As Chen-Wishart remarks, ‘the only reason that Hedley Byrne v Heller is a tort and not a contract case … is the absence of consideration’.54 But this has turned out to be no small issue of categorisation. It has caused serious confusion. Even if Hedley Byrne should not be understood as a contract case proper, forcing it into the law of tort, and into the law of negligence more specifically, has been a disaster. The fundamental problem here is this. Let us accept, at least arguendo, the premise that contracts must require consideration. Many take it to follow from this premise that agreements or promises can be legally binding only if accompanied by consideration. This in turn implies that Hedley Byrne actions cannot be based on agreements or promises. Of course, that notion is reinforced by the idea that Hedley Byrne actions belong to tort law, and in particular to the law of negligence, that area of the law being concerned with carelessly caused injury and not with promises or agreements. The problem with this argument, however, is that the inference from the premise to the first conclusion is invalid. Even if contract ought to require consideration, it does not follow that no promises or agreements made without consideration ought to be legally enforceable.55 Nor does it follow, then, that liability in Hedley Byrne-type cases cannot be founded on promises or agreements. These cases may be ones where the defendant’s promise ought to be enforced even in the absence of consideration. That the civil law sees these cases as contractual makes this position seem natural. On the other hand, that the common law categorises them as tortious and as belonging to the law of negligence makes the same position seem jarring, even perhaps heretical. But if it is true that ‘the only reason that Hedley Byrne v Heller is a tort and not a contract case … is the absence of consideration’, then this ought strongly to suggest to us that Hedley Byrne is a contract-like, and not a negligencelike, case. Unfortunately, the doctrine of consideration is not merely an idiosyncrasy of the common law, it can be little short of a fetish. It has so clouded our understanding of the law in general, that we have been able to say things that are quite clearly false: such as that tort law deals only with imposed rather than assumed obligations, that no agreements or promises made without consideration should be legally enforceable and that the common law in fact does not enforce such 54 Chen-Wishart (n 47) 230 (citation omitted). Incidentally, Chen-Wishart also claims that had the plaintiff been successful in this case, reliance damages only and not expectation damages would have been available. In fact, however, this distinction comes to nothing in these contexts, in which any assumed responsibility is for the consequence of the plaintiffs’ reliance. In the absence of the disclaimer, etc, the damages available in Hedley Byrne would not have varied had the plaintiffs provided a peppercorn in return for the report. In other Hedley Byrne-type cases, especially those involving promises to perform services, I submit that expectation damages are available, though no doubt courts will attempt to dress these up as reliance damages. 55 For instance, one (not me) might claim that the violation of only those agreements made with consideration should attract expectation damages (see, eg, Chen-Wishart (n 47)) while holding that other agreements are nevertheless binding and enforceable in other ways.

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agreements. In this area, the consequence has been that courts in particular, feeling that they cannot utilise in this context concepts belonging to contract law, have tried, in the most obscurantist fashion, to mirror norms of agreement and promise in the language of the law of negligence, doing considerable damage to the Hedley Byrne action and the law of negligence more generally in the process. It is to this that we now turn.

VII. Assumption of Responsibility and the Law of Negligence It is first important to deal with a misunderstanding that can arise in this context. A useful way to do so is to examine an argument presented by Robertson and Wang in this volume. They begin with Robert Stevens’ claim that: Whether an implied undertaking has been given by conduct is a matter of interpretation, determined by convention as to when it can be concluded that one party is assuming responsibility for another. Like a surgeon, a solicitor owes a duty of care to his client even if he provides his services gratuitously.56

They then maintain that: The essential problem with this idea is that the courts do not require that the defendant manifest any consent to the obligation in question, and the cases do not support the notion that there is any such requirement. Allan Beever claims that the right protected by the tort of negligent misrepresentation ‘is based on the defendant’s consent’ and ‘is a right given by the defendant to the claimant’.57 But Beever later acknowledges that ‘the issue is not whether the defendant agreed to place herself under a legal obligation’ or ‘agreed to be liable’ but ‘whether the defendant placed herself under a legal obligation by guaranteeing the accuracy of some information, by consenting to do something, etc.’58 But a person who consents to do something does not thereby place himself or herself under a legal obligation unless he or she makes a commitment and manifests an intention to be legally bound by that commitment. If the defendant only consented ‘to do something’ and did not manifest any consent to the legal obligation that arises from that conduct then there is nothing distinctive about this category of obligation. It is simply imposed by law on the basis of conduct that is potentially harmful.59

The claim made here could be one of the following three. First, it does not follow from the fact that A consents to do x that A is legally obliged to do x. Secondly, if A consents to do x, A comes under a legal obligation to do x only if he additionally consents to the existence of that obligation and that consent is characteristically absent in these cases. Thirdly, even if A consents to do x and A is legally obliged to 56 57 58 59

Stevens (n 42) 12. Beever (n 7) 273. ibid 303. Robertson and Wang (Chapter 3, text at n 59).

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do x, it does not follow that A is obliged in connection with y, a consequence of x, and in the relevant cases it is y and not x for which B is seeking recovery. These claims are examined in turn. The first is correct on its face. The problem is that is relies on an inappropriate understanding of the meaning of ‘consent’. In this context,60 ‘consent’ alludes to the work of Peter Birks in particular, where it is proffered as the basis of a legal event that gives rise to legal relationships in many areas of the law, particularly, of course, in the law of contract.61 Here, then, the claim that A has consented to do x does not imply that he has merely indicated willingness to do x or the like, it means that a legal event has occurred in which A comes under an obligation to do x by consenting to do it. In this sense of the term, it is not coherent to say that A consents but does not commit himself. The claim that in Hedley Byrne-type cases the defendant’s potential liability ‘is based on the defendant’s consent’ is to be understood in this fashion.62 The second claim is false. It is not true that one must consent to an obligation for that obligation to exist. If I commit myself to doing x, then I have an obligation to do x. I do not additionally have to consent to the obligation to do x. A promise to do something, for instance, is a commitment to do that thing that creates an obligation. It is not also a commitment to the commitment, a consent to the obligation. All that is redundant. The third claim is true, but it does not advance the argument. The position is not that in undertaking to do x, A necessarily also undertakes to do y. It is rather that, if there is to be liability, A must have undertaken to do y if y is the obligation that A is said to have violated. Let us take some examples. Imagine a conversation in which you tell me that you are considering investing in a company. In response, I agree to find out what I can about the company and to provide you with a report. In this report, I tell you that I can guarantee that I have accurate information regarding the company’s financial position and that in my view you ought to invest. Imagine that I am so confident that I say ‘If you invest, I guarantee that you will double your money in five years’. Finally, imagine that there is nothing in the context of this conversation to indicate that I mean anything other than what I say—eg my guarantee is not hyperbole or puffery but is meant literally. But say also that the company is in fact 60

That is, in the context of ibid. eg P Birks, Introduction to the Law of Restitution, 2nd edn (Oxford, Clarendon Press, 1989); P Birks, Unjust Enrichment (Oxford, Clarendon Press, 2003). 62 Similarly, in this volume Witting maintains that ‘With respect to [Beever’s] argument about the law relating to misstatements being part of the “law of consents” rather than negligence, this can be given short shrift. There is no generally accepted category of law called the ‘law of consents’ (Chapter 9, text following n 24). If this means that there is no such explicit category, such as the law of defamation or the law of crime, then of course Witting is right. One might ask, however, how I might have been thought not to have known this. Naturally, I am not claiming that there is an official law of consents, to be discovered in some dusty textbook that has fallen behind the shelves containing the better-known volumes on the laws of tort, contract, crime, etc; but that consent is the event that generates the obligation upon which the Hedley Byrne action relies. 61

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in poor shape and that you suffer significant loss as a result of your subsequent decision to invest. If we assume, as seems reasonable, that you have a Hedley Byrne action against me here, what is the obligation that I am said to have violated? According to the contract model, it is the obligation that I undertook, guaranteeing that the investment was a good one. Note that it is not the obligation to provide a report. I may not have had any such obligation and, if I had, I did not violate it. Of course, this is an extreme case, likely to occur only infrequently (though it is far from impossible). Let us then consider more probable scenarios. Imagine the same case but where my report lacks the guarantee of profit. Put positively, the report guarantees that I have accurate financial information and recommends that you invest. In this case, the obligation that I violate is the obligation to provide accurate information regarding the financial position of the company, an obligation that I expressly undertook. Again, however, this case is somewhat unlikely, but let us be more realistic again. Imagine that we have the same case but that my report indicates that I have looked into the matter and have discovered that the company is in good shape and that, in the light of that information, I recommend that you invest. What is the obligation here? Normally, it will be that I observed due diligence in obtaining the information and in giving the advice. This is not because I expressly undertook that obligation, but because it is an implied undertaking given my behaviour.63 Perhaps it is at this point that the objection is meant to bite. As this obligation was not expressly undertaken by me, it may be tempting to conclude that ‘It is simply imposed by law on the basis of conduct that is potentially harmful’.64 But that position would involve a strange understanding of the nature of communication. Think of this case in abstraction from the law. Apart from wanting compensation from me, you may be angry to discover that I had not taken sufficient care in preparing my report. You come to me and complain about this. I respond by saying ‘I agreed to prepare the report but I did not promise to do it carefully’. Who would find this reply at all compelling? It is clear that I am being obtuse. In agreeing to prepare the report, I implicitly agree to do so carefully—unless, of course, 63 Again, however, one might object that these cases will be rare. That is, it will only be in unusual cases in which the relevant responsibility will be assumed in the absence of consideration and thus in the absence of a contractual remedy. But that is no objection to the view advanced here. The point is entirely correct and in conjunction with the contract model explains why the vast majority of the leading cases in this area are ones in which the plaintiff loses. On the model advanced here, Hedley Byrne liability is far narrower than it would appear, at least potentially, to be on the negligence model. This is also borne out by the case law. Incidentally, the claim that Hedley Byrne liability cannot rest on an assumption of responsibility as responsibility is not assumed without consideration was most powerfully made by B Coote, ‘The Effect of Hedley Byrne’ (1966–1967) 2 New Zealand Universities Law Review 263. But as Coote now realises, the argument was overdrawn. B Coote, ‘Assumption of Responsibility and Pure Economic Loss in New Zealand’ [2005] New Zealand Law Review 1. There are many reasons a person might assume responsibility that do not count as consideration for the purposes of the law of contract, at least as traditionally understood. 64 Robertson and Wang (Chapter 3).

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I indicate otherwise.65 And this is not because something is imposing on me any obligation. It is because that is what my explicit agreement entails. This is what it means to say that the obligation is implied—it is implicit in the express undertaking I made. It is not imposed. Similarly, imagine that I agree to babysit your children while you have an evening out. Coming home, you are astonished to see your sons drunk having helped themselves to a large portion of your liquor cabinet and even more shocked to find me playing strip poker and smoking crack with your daughter. I respond to your amazed expressions by saying ‘What’s the problem? You asked me to babysit your kids. None of us ever said anything about drinking, smoking or playing strip poker. I’ve kept my promise’. My response is ridiculous. Likewise, I do not keep my promise to cook you dinner if I serve rat poison or to pick you up after work if I arrive with a forklift.66 With this in mind, we can turn to the notion that the idea that ‘The essential problem with [the contract model] is that the courts do not require that the defendant manifest any consent to the obligation in question, and the cases do not support the notion that there is any such requirement’.67 The first thing to be said is that the claim is false. Given what has been said above, it is clear that many courts have required precisely this. But one would certainly be right to maintain that this requirement is far from universal. This is a result of the confused state of the case law. But the crucial point in this context is that, when courts reject the contract model, they replace it with approaches that are in fact best explained by the model that they reject. The problem, in other words, is that we have once again replaced what actually matters with a defective proxy. I have examined the sometime requirements of skill, purpose, representation, proximity, reasonable foreseeability, reliance and negligence as well as the treatment of disclaimers and casual conversations elsewhere. In each case, I show that these are best explained as defective proxies for assumptions of responsibility.68

65 As Campbell reminds us in Chapter 5, however, the way I transmit the information is also important. For instance, if I indicate that it would be wrong to rely solely on the information, then this changes everything. As Campbell additionally points out, this surely reveals that there can be no suggestion that the defendants in Hedley Byrne were negligent. It is notable that that seemed to make no different to the case whatsoever. 66 Similarly, if I agree to build a house for you and do it negligently, I can be said to have breached my promise. This is because the notion that I will build it carefully is implicit in what I explicitly say. It is not because the law imposes on me an obligation to build carefully if I choose to build at all or any such bizarre notion. For discussion of the theory that lies behind these notions as it relates to contract in particular, see B Langille and A Ripstein, ‘Strictly Speaking, It Went Without Saying’ (1996) 2 Legal Theory 63; A Beever, ‘Agreements, Mistakes, and Contract Formation’ (2009) 20 King’s Law Journal 21. As a general matter, the notion that the content of a statement is exhausted by its explicit meaning is entirely implausible. Communication requires an enormous commitment to the implicit. That is true even of unexpressed thoughts. For discussion, see, eg, JR Searle, Intentionality: An Essay in the Philosophy of Mind (Cambridge, Cambridge University Press, 1983) 141–60. 67 Robertson and Wang (Chapter 3). 68 Beever (n 7) 287–302.

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The reader can be directed to those arguments. Suffice it for now to examine one case, perhaps the most confused of all, the decision of the New Zealand Court of Appeal in AG v Carter. The plaintiffs purchased a vessel, the Nivanga, from a third party. They did so in the light of two interim certificates of survey and one certificate of survey issued by the Marine Division of the Ministry of Transport (‘MOT’) in accordance with section 206 of the Shipping and Seamen Act 1952 (NZ). The certificates indicated that the vessel was safe and seaworthy.69 The plaintiffs alleged that they suffered loss in reliance on the negligently issued certificates. The Court found that the purpose of the Act, and hence the requirement in the Act to inspect vessels and issue certificates, is to ensure that water-borne vessels are safe and seaworthy.70 In Carter, the Court resoundingly rejected the contract model in favour of the negligence model. It also maintained that a duty of care could be owed by the defendant to the plaintiff only if the parties were in a relationship of proximity. That would be the case if and only if the plaintiff ’s reliance on the defendant’s statement was reasonable and reasonably foreseeable.71 The Court concluded that the plaintiffs were not owed a duty of care, as a relationship of proximity did not exist. First, as the certificates were issued for the purpose of ensuring the safety and seaworthiness of the vessel, it was not reasonable for the plaintiffs to rely on them for the different purpose of making investment decisions.72 Secondly, the Court maintained that the plaintiffs’ reliance was not reasonable, as the relevant sections of the Shipping and Seamen Act 1952 indicate that certificates of survey are prepared for the benefit of passengers and crew of ocean-going vessels, other seafarers and the sea itself. The certificates are not prepared for the benefit of prospective purchasers of vessels.73 Hence, in ‘none of the capacities in which the plaintiffs claim to have suffered loss were they the person or within the class of persons who were entitled to rely on the certificates’.74 Rejecting the contract model on the ground that ‘In tort obligations are imposed, not assumed, as they are in contract’,75 the Court went on: But, that said, the idea of one person assuming, in the sense of coming under, a responsibility to another in tort, does have value when understood in the sense that in certain circumstances the law requires responsibility to be assumed. Responsibility is then deemed in law to have been assumed. The expression ‘deemed assumption of responsibility’ conveniently expresses this process of thought and is thus conceptually consistent with the conventional difference between tort and contract.76

69 70 71 72 73 74 75 76

AG v Carter (n 5) [15]. ibid [11]–[18]. ibid [22]. ibid [33]–[34]. ibid [17], [34]. ibid [34]. ibid [23]. ibid.

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This is at least close to double Dutch. The label ‘deemed assumption of responsibility’ is obscurantist. The phrase ‘the idea of one person assuming, in the sense of coming under, a responsibility’ is hard to decipher. A deemed assumption of responsibility is simply a deemed responsibility. It cannot but serve to confuse matters to refer to it as a deemed assumption of responsibility. So why so refer to it? As we will see, it is because a ‘deemed assumption of responsibility’ is in fact just an assumption of responsibility. More fully, though the Court explicitly rejected the contract model in favour of the notion of deemed assumptions of responsibility, it propounded a test that entails that a defendant will be deemed to have assumed responsibility when and only when he did in fact assume responsibility. Moreover, the Court’s application of the negligence model is unstable. As indicated above, proximity between the parties is held to exist if the plaintiff ’s reliance on the defendant’s statement was reasonable and foreseeable. But the Court adopted an odd view of reasonable reliance. The Court insisted that if a defendant makes a statement for one purpose, then any reliance on that statement for a different purpose is unreasonable. Moreover, the Court asserted that it is not reasonable for a person to rely on a statement unless the statement was made for the benefit of that person. While this position produces outcomes that fit the settled law, it is not remotely plausible. It is often perfectly reasonable to rely on statements in the relevant circumstances. If an auditor prepares a glowing report into a publicly listed company for purposes of the company’s AGM, then it is entirely reasonable for me to rely on that report (perhaps not in isolation) when deciding whether to invest in that company. In fact, it would be quite irrational of me not to do so. This is so whether or not I was a shareholder of the company at the time of the AGM and hence whether or not the report was prepared for me.77 Every day, people rely on reports of this kind to make similar decisions. People routinely decide to buy cars, for example, on the at least partial basis that they have recently received a Warrant of Fitness, MOT, etc. They are not acting unreasonably when they do this. In Carter, the plaintiffs’ reliance was also entirely reasonable. Similarly, I am familiar with a New Zealand car auction company that prepares mechanical reports for its customers on the state of its vehicles. The report contains the phrase: ‘Note: This report is not a warranty. This report is a guide only’. This prevents Hedley Byrne-type liability arising in relation to these reports, but that cannot be because a customer’s decision to rely on the report would be unreasonable. If that were so, what could the point of preparing the reports be? In response to related concerns, La Forest J in London Drugs Ltd v Kuehne & Nagel International Ltd distinguished ‘mere reliance in fact and reasonable reliance on the employee’s pocket-book’.78 Hence, for La Forest J, the question was not 77

cf Scott Group Ltd v McFarlane [1978] 1 NZLR 553 (CA). London Drugs Ltd v Kuehne & Nagel International Ltd [1992] 3 SCR 299. See also Edgeworth Construction Ltd v M D Lea & Associates Ltd [1993] 3 SCR 206; Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL); R Cooke, Turning Points of the Common Law (London, Sweet & Maxwell, 1997) 19–22. 78

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whether it was reasonable for the plaintiff to rely on the statement, but whether it was reasonable for the plaintiff to expect the defendant to compensate her for her, perhaps reasonable, detrimental reliance on the statement. Perhaps, then, it is possible to concede that the plaintiffs’ reliance in Carter and in the hypothetical cases discussed was reasonable in fact, but maintain that it would not be reasonable for the plaintiffs to rely on the defendant’s pocket-book. The problem is that there is a mere illusion of an argument here. The claim is that, while it may have been reasonable for the plaintiff to have relied on the defendant’s statement, it is not reasonable for the plaintiff to expect to be compensated by the defendant for the consequences of that reliance. But we need to know why that expectation is unreasonable. Given that the plaintiff ’s reliance was reasonable in fact, the reasonable foreseeability of the plaintiff ’s injury and the commitment to the negligence model, it is obscure why the expectation of compensation is unreasonable. Nor is it any better to say that recovery would not be fair, just or reasonable. Why would it not be? In fact, the plaintiff ’s expectation of compensation is unreasonable because the defendant did not assume responsibility for the plaintiff ’s reliance on the statement in the first place. Hence, it is unreasonable for a plaintiff to expect compensation for detrimental reliance on a statement for a purpose other than that for which the statement was made, because the defendant did not assume responsibility to the plaintiff for that reliance. Similarly, it is unreasonable for a person to expect compensation for detrimental reliance on a statement if that statement was not made for her benefit, because the defendant did not assume responsibility to the plaintiff at all. In Carter, though the plaintiffs’ reliance on the MOT’s reports was perfectly reasonable—it would have been irrational for them not to rely—it was unreasonable for them to expect compensation from the defendant because the MOT did not assume responsibility to the plaintiffs as to the quality of the vessel; in fact, the MOT did not assume responsibility to the plaintiffs at all. It unnecessarily complicates the enquiry and disguises the nature of the action to base liability on a restrictively defined reasonable and foreseeable reliance or to distinguish ‘mere reliance in fact and reasonable reliance on the employee’s pocketbook’ when the question is simply whether the defendant assumed responsibility to the plaintiff for the plaintiff ’s reliance. Though the Court of Appeal insisted on the negligence model, it did not apply it in fact. Rather, the actual decision in the case, as well as the more general rules concerning limitations on the duty of care, are based on the contract model. Again, the defective proxy is hiding the basis of this action.79

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VIII. Conclusion We have encountered the claim that Lord Atkin was wrong to maintain in Donoghue v Stevenson that there must be and is a general conception of the duty of care. In this volume, Robertson and Wang maintain against this view that Lord Atkin was right. He was. But this is not because Hedley Byrne actions belong to Donoghue v Stevenson. It is because they are not negligence actions at all. At least in the area of private law, Hedley Byrne and Donoghue v Stevenson are often said to be the two most important cases of the twentieth century. Apart from that, properly understood they have nothing to do with each other. The idea that the former is a species of the latter has done considerable, perhaps irreparable, damage to both areas of the law. It has occluded the basis of the Hedley Byrne action, leading to the invention of a host of tests, guidelines, markers etc for liability that do no more than confuse the real issues at stake. And the attempt to accommodate Hedley Byrne within the law of negligence has corrupted that law by furthering the expansion to meaninglessness of concepts such as proximity, neighbourhood, reasonableness and the duty of care. If I cause you physical injury or property damage, then I am liable if I create an unreasonable risk of the injury that you suffered and that risk materialised in your injury. This is not nearly sufficient for liability under Hedley Byrne. That liability requires an assumption of responsibility by the defendant to the plaintiff, usually giving the plaintiff a right to rely on information provided. In short, despite the way in which it has been pigeonholed, Hedley Byrne is contractual in nature. And this state of affairs is precisely what should be expected in a legal system that officially maintains three things that simply cannot be true: that Hedley Byrne liability is based on Donoghue v Stevenson’s neighbour principle, that only contract law as recognised in the common law deals with assumed obligations and that agreements or promises are legally binding only if accompanied by consideration.

5 The Curious Incident of the Dog that did Bark in the Night-Time: What Mischief does Hedley Byrne v Heller Correct? DAVID CAMPBELL*

[S]uffering and evil are nature’s admonitions; they cannot be got rid of; and the impatient attempts of benevolence to banish them from the world by legislation, before benevolence has learned their object and their end, have always been productive of more evil than good.1

I. Introduction It is unarguable that the creation of tort liability for negligent misstatement by the 1963 House of Lords’ decision in Hedley Byrne and Co Ltd v Heller and Partners Ltd2 has, I would say in a somewhat supererogatory fashion even at the time,3 and far more so when the position is assessed now, as in this volume, very substantially added to the difficulties of the doctrinal formulation and the practical application of the law of negligence. It was also a first4 jab at the coherence of the * I am grateful to Allan Beever, Paul Mitchell, Jonathan Morgan, John Murphy and the editors of this volume for their comments. 1 Editorial, ‘Administration of Towns’ (13 May 1848) 246 The Economist 536. 2 Hedley Byrne and Co Ltd v Heller and Partners Ltd (‘Hedley Byrne’). The Court of Appeal decision is reported at [1962] 1 QB 396 (CA). The transcript of the unreported High Court judgment of McNair J, handed down on 20 December 1960, is held in the House of Lords’ Library. The reference code by which it most conveniently may be found by searching the Parliamentary Archives database (Portcullis) is HL/PO/JUU/4/3/1107. The transcript can be found in the Appendix to this volume. I am grateful to Paul Mitchell and Ms Jennie Lynch of the Parliamentary Archives for help in obtaining this transcript. Due to Ms Lynch’s efforts, the entire House of Lords Library file of Hedley Byrne case papers is now open. 3 The incident that led to Home Office v Dorset Yacht Co Ltd [1970] AC 1004 (HL) occurred on the night of 21–22 September 1962 and the writ was issued on 6 February 1965. 4 This is not strictly correct. The Report that led to the Act was published in 1962: Law Reform Committee, Tenth Report: Innocent Misrepresentation (Cmnd 1782, 1962).

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contractual doctrine of misrepresentation, prior to the knockout blow landed by the Misrepresentation Act 1967 ss 1–2,5 but so far as possible I shall avoid the detail of contractual misrepresentation as I wish to focus specifically on tort liability outside of contract. The state of the current law in respect of such liability is perhaps best captured in the way that Professor Beever has gone so far as to argue that ‘the negligence model of negligent misrepresentation is irreparably flawed at its base’, with the compelling implication ‘that “negligent misstatement” is a misleading name for the cause of action’.6 Though Beever generally defends the assumption of responsibility model as an alternative justification of Donoghue v Stevenson7 liability,8 this is so in regard of Hedley Byrne liability only because he has formerly understood assumption of responsibility sufficiently widely as to include assumption in contract, and, as he makes clear in his chapter in this volume, which identifies assumption of responsibility with contract, this is an entirely different matter to what we shall see it is quite wrong to call assumption of responsibility in tort. In this chapter, I will argue that, putting fraud and ‘particular’ ‘special relationships’ to one side, contract is the only legitimate basis of liability for negligent misstatement, but I will do so in a way which, as our understandings of consideration and contract (and indeed Donoghue liability) are by no means congruent, and as I confine the meaning of ‘assumption of responsibility’ to the claimed justification of tortious liability,9 significantly differs from Beever’s. Though I will say something about both the negligence and the assumption of responsibility models, and give, I trust, a novel statement of the reason why the latter signally fails to ground negligent misstatement, I will not enter into the detail of the case law or the academic literature after Hedley Byrne. I write this chapter to argue that, as nothing of value has been gained by the creation of the tort of negligent misstatement, the best way to avoid the difficulties it has generated is not to try to make it reasonably justiciable but to abolish it. I am generally inclined to abolish the tort of negligence as it has been given shape by Donoghue, and in particular I am convinced that the personal injury system should be abolished.10 But the personal injury system at least addresses, however inadequately, the undoubted mischief of injury inflicted on a claimant who (let us allow for the purposes of argument) played no part other than that

5 Misrepresentation Act 1967 (UK). This most unfortunate statute was immediately subjected to an unforgettably thorough exposure of its inadequacies: PS Atiyah and GH Treitel, ‘Misrepresentation Act 1967’ (1967) 30 MLR 369. 6 A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing, 2007) 282, 283. 7 Donoghue v Stevenson [1932] AC 562 (HL). 8 Beever (n 6) 304–10, replying to K Barker, ‘Unreliable Assumptions in the Modern Law of Negligence’ (1993) 103 LQR 461. 9 I put to one side the way that Transfield Shipping Inc v Mercator Shipping Inc (The Achilleas) [2009] 1 AC 61 (HL) has unarguably brought tortious assumption of responsibility into the core of the law of contract, with results which we are in the process of finding out, but as should have been clear from the start, are, with respect, most unwelcome. 10 D Harris, D Campbell and R Halson, Remedies in Contract and Tort, 2nd edn (Cambridge, Cambridge University Press, 2005) ch 24 and D Campbell, ‘Interpersonal Justice and Actual Choice as Ways of Determining Personal Injury Law and Policy’ (forthcoming 2015) Legal Studies.

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of passive victim.11 In contrast, the negligent misstatement claimant played an essential active part in causing the loss by voluntarily relying on the statement in order to gain an economic benefit, and as her reliance on the statement being non-negligent is completely unjustifiable by the standard which we normally use to decide whether an economic benefit has been legitimately obtained, which is that it has been paid for, there is normally no possibility of ‘reasonable reliance’ on a negligent misstatement. In Silver Blaze, one of the most successful of the Sherlock Holmes stories, that a dog did not bark at a man with criminal intent who by night entered premises the dog was guarding is recognised by Holmes as a ‘curious incident’ which is the key to unravelling the crime.12 The dog should have barked but didn’t. Hedley Byrne is an incident which gives rise to a curiosity of an opposite sort. There would not merely have been nothing wrong in leaving Hedley Byrne and Co to bear its loss, but it would have entirely been right to do so. To those, like myself, who believe that voluntary exchange should prima facie be the means of obtaining economic goods, there appears to be no good general reason not to use the law of contract to determine the extent of the legal protection of reliance on others’ statements. Certainly the law after Hedley Byrne discloses no such reason. Hedley Byrne itself addressed no actual mischief, and that it was from the outset worse than pointless has rendered the law of negligent misstatement particularly open to incoherent judicial legislation, whether that legislation is analysed using the negligence or the assumption of responsibility models. Hedley Byrne is a curious incident of a dog barking when there was nothing to bark about. And, as anyone who has a dog knows, there is very little that is more annoying. I must confess that I cannot claim much originality for my criticism of Hedley Byrne itself. Leaving aside the contributions of numerous others, before Hedley Byrne had even appeared in The Law Reports, the essence of what I will say had been said by the late Mr Weir in the first of those casenotes which established his mastery of the form.13 But I do hope to explain why the House of Lords barked when it had no need to do so, and to sort out the misunderstandings about the nature of economic action that evidently still continue to confound our evaluation of Hedley Byrne.

II. The Mischief in Hedley Byrne Though I have in a sense done so, it is wrong to say that Hedley Byrne created liability for negligent misstatement. Rather, it expanded such liability beyond the 11 I put to one side the specific issues of liability for negligent misstatement leading to personal injury: Phelps v Hillingdon LBC [2001] 2 AC 619 (HL). 12 I am not the first to attempt to put Holmes’ reasoning here to theoretical use. I am aware that I follow in the footsteps of the late Ronald Coase: RH Coase, The Firm, the Market and the Law (Chicago Ill., University of Chicago Press, 1986) 58. No doubt there are other precursors of whom I am unaware. 13 AJ Weir, ‘Liability for Syntax’ [1963] CLJ 216. So far as possible I wish to avoid detailed discussion of the quality of Hedley Byrne as adjudication and on this I would again have little to add to a brilliant contemporaneous comment: R Stevens, ‘Hedley Byrne v Heller: Judicial Creativity and Doctrinal Possibility’ (1964) 27 MLR 121.

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bounds identified with Derry v Peek,14 which had been felt to be excessively constraining in a number of cases, the most important of which was Candler v Crane, Christmas and Co.15 It was, of course, perfectly possible at the time of Derry v Peek that making an incorrect statement could lead to legal liability. I will return to the issue of what the bounds identified with Derry v Peek actually were, but for now let us just take them to be fraud, contract,16 a fiduciary relationship derived from a contract, or a non-contractual ‘special relationship’ found by the courts to exist ‘in particular cases’.17 Though I do not purport to give anything like a complete account of the doctrinal background of Hedley Byrne, I propose to begin by turning, not to the case itself, but to the dissent of Denning LJ in Candler,18 which Hedley Byrne effectively made into law.19 In Candler, the claimant invested £2,000 (now circa £75,000) in a mine in reliance on a statement of the mine’s accounts by its owner’s accountants, the defendant. The investment proved disastrous and the £2,000, as well as other subsequent investments of money and labour by the claimant, were lost. There was no question that the accounts were prepared negligently and there was no question of proximity, for an employee of the defendant, at the mine owner’s request, discussed the matter with the claimant and the mine owner.20 The case focused on whether the defendant had been fraudulent, and so liable under Derry v Peek, or negligent, and so not liable, on the same authority as interpreted in Le Lievre v Gould.21 The problem in Candler was caused by the mine owner, who was a scoundrel who both harried and misled his accountants (their negligence in the preparation of the accounts was nevertheless unquestionable) and badly mismanaged the mine, including misusing the £2,000. Both the mine company and the owner personally became insolvent, so the claimant turned to the defendant, establishing that he would not have made his investment were it not for the negligent accounts. In the absence of fraud by the defendant or a contractual relationship between it and the claimant, Cohen and Asquith LJJ found for the defendant. But they were perfectly conscious that, proximity being no issue at all, their doing so ran against the climate established by Donoghue, and Denning LJ was invited to read 14

Derry v Peek (1889) 14 App Cas 337 (HL). Candler v Crane, Christmas and Co [1951] 2 KB 164 (CA). 16 At the cost of stating what should be obvious, let me point out that negligently making a statement would breach the duty to take reasonable care which is of the essence of a contract to provide professional advice and the like now codified under the Supply of Goods and Services Act 1982 (UK) s 13. Exclusion of this liability is now regulated under s 16 and, behind this, the Unfair Contract Terms Act 1977 (UK) and the Unfair Terms in Consumer Contracts Regulations 1999, SI 1999/3159 (UK). It is, of course, possible to contract for strict liability for a statement’s being incorrect, but it is extremely difficult to conceive of a party making a statement on this basis. 17 See the text accompanying n 73 below. I again put to one side specific issues arising from the recognition of liability for negligent misstatement leading to physical harm. 18 Candler (n 15) 174–85. 19 Lord Denning, The Discipline of Law (London, Butterworths, 1979) 237: ‘Fourteen years later my dissent in Candler v Crane Christmas was approved by the House of Lords’. 20 Issues surrounding the employee’s capacity to bind his employer were discussed. 21 Le Lievre v Gould [1893] 1 QB 491 (CA). 15

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his dissenting judgment first. Behind the ‘point of law of much importance’,22 whether there was a duty of care, Denning LJ saw adopting liability on the Donoghue basis as the correction of an ‘error … which appears time and time again in nineteenth century thought, namely, that no one who is not a party to a contract can sue on it or on anything arising out of it’.23 This error led to injustice which was a denial of civilisation: Now I come to the great question in the case: did the accountants owe a duty of care to the plaintiff? If the matter were free from authority, I should have said that they clearly did owe a duty of care to him. They were professional accountants who prepared and put before him these accounts, knowing that he was going to be guided by them in making an investment in the company. On the faith of those accounts he did make the investment, whereas if the accounts had been carefully prepared, he would not have made the investment at all. The result is that he has lost his money. In the circumstances, had he not every right to rely on the accounts being prepared with proper care; and is he not entitled to redress from the accountants on whom he relied? I say that he is, and I would apply to this case the words of Knight Bruce LJ in an analogous case ninety years ago: ‘A country whose administration of justice did not afford redress in a case of the present description would not be in a state of civilisation’.24

Before turning to Hedley Byrne, I wish to stress what I would call the tendentiousness of Denning LJ’s approach. It is all a matter of the claimant, self-evidently from the answer to the rhetorical question asked, having a ‘right’ which ‘entitled’ him to ‘redress’, and therefore of the defendant’s corollary duty to provide the redress. There is no question of anything that the claimant had to do to be owed the duty, other than suffer a loss. This approach, and indeed unconsciously its tendentiousness, was overwhelmingly warmly welcomed in commentary on Candler, with the majority decision itself coming in for strong criticism. Aubrey Diamond, then Reader in Law at the London School of Economics, saw it as ‘an unrealistic decision’ preserving an outmoded reluctance to compensate ‘pecuniary [ie pure economic] loss’.25 Diamond concluded that ‘the dissenting judgment of Lord Justice Denning should be established as the true legal rule’.26 I will be extremely brief about the facts of Hedley Byrne, which will be thoroughly well known to any reader of this chapter. When considering whether to undertake advertising work for a manufacturer which put it at a particular financial risk of up to £9,000 (now circa £175,000), the claimant advertising agency sought a credit reference from its bank. The bank made inquiry of the defendants, the manufacturer’s bank, and was given what it understood to be a satisfactory reference,27 the substance of which it communicated to the claimant. When the 22

Candler (n 15) 174. ibid 177. 24 ibid 176, quoting Slim v Croucher (1860) 1 De GF & J 518, 527; 45 ER 462, 466. 25 A Diamond, ‘The Law of Contract and Tort’ in G Gardiner and A Martin (eds), Law Reform NOW (London, Victor Gollancz, 1963) 74–75. See further the text accompanying n 60. 26 ibid. 27 I myself do not understand, on the basis of the reported facts, the conduct of the claimant’s bank, or, more accurately, how that conduct escaped criticism. 23

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manufacturer shortly thereafter went into liquidation, leaving the claimant with the loss it feared, the claimant brought the action in what was to become negligent misstatement against the defendant. These facts are, of course, on a first look similar to those of Candler, but they were significantly different, especially as regards two important points. First, though it was found to be so,28 the balanced way in which it gave the credit reference raises, in my opinion, a serious question whether the defendant was negligent at all, and, however this is, it certainly was less culpable than the defendant in Candler. Secondly, the claimant’s bank sought the reference on the basis that it would be given ‘without responsibility on [the defendant’s] part’,29 and it was so given. I shall return to both of these points. But for present purposes we should note that, given the disclaimer, the Lords were not going to find liability in Hedley Byrne itself,30 although in their anxiety to create tortious liability for negligent misstatement in the future they nevertheless somewhat desperately seized on the case, and this desperation is one reason why Hedley Byrne is so unsatisfactory.31 Its facts were not nearly so compelling as those in Candler, and using them as the pretext for this major judicial legislation does seem particularly unwise: ‘travelling to the village church via the moon’ as Honoré unforgettably put it.32 In regard of the issue I want to address, the reason these pains were taken emerges most clearly from the speech of Lord Devlin, who thought: [T]hat the law, if settled as [the majority in Candler settled it], would be defective. As well as being defective in the sense that it would leave a man without a remedy where he ought to have one and where it is well within the scope of the law to give him one, it would also be profoundly illogical. The [defendants] in this case cannot deny that they were

28 Lord Devlin described ‘a reference which was so carelessly phrased that it led the [claimant] to believe the traders to be creditworthy when in fact they were not’: Hedley Byrne (HL) (n 2) 515. As will emerge, I cannot agree with this. The text of the reference is given in the statements of the facts in the Court of Appeal and House of Lords reports. I can confirm this text almost exactly reproduces accepted testimony before McNair J. Though I will not advance a close examination of a document which previously has effectively not been publicly available, the discussion of the matter before McNair J is very helpfully more extensive. The defendant argued that the reference was very guarded and indeed contained ‘red lights’ about the manufacturer. McNair J rejected this and saw the reference as ‘a favourable reference without any real qualification’. This involved him placing little or no weight on evidence about the way the reference would be understood by bankers, nor, strikingly, on evidence that the claimant’s Company Secretary summarised the telephone conversation thus: ‘phoned Bank who gave a fair but guarded report’. 29 Hedley Byrne (HL) (n 2) 198. 30 ibid 533 (Lord Devlin): ‘A man cannot be said voluntarily to be undertaking a responsibility if at the very moment when he is said to be accepting it he declares that in fact he is not’. It very arguably was the possibility of changing the law without effectively retrospectively legislating against the defendant that made Hedley Byrne seem so opportune an occasion for judicial legislation. 31 One cannot but wonder about how satisfactory the claimants found Hedley Byrne when it became clear that law reform had been funded by their taking an action they had tantamount to no hope of winning so far as the Lords! As private litigation, an aspect from which it is almost never viewed, Hedley Byrne is quite surreal. 32 AM Honoré, ‘Hedley Byrne and Co Ltd v Heller and Partners Ltd’ (1965) 8 Journal of the Society of Public Teachers of Law NS 284, 291.

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performing a service. Their sheet anchor is that they were performing it gratuitously and therefore no liability for its performance can arise. My Lords, in my opinion this is not the law. A promise given without consideration to perform a service cannot be enforced as a contract by the promisee; but if the service is in fact performed and done negligently, the promisee can recover in an action in tort … it is true that this principle of law has not yet been clearly applied to a case where the service which the defendant undertakes to perform is or includes the obtaining and imparting of information. But I cannot see why it should not be; there is ample authority to justify … saying now that the categories of special relationships which may give rise to a duty to take care in word as well as in deed are not limited to contractual relationships or to relationships of fiduciary duty, but include also relationships which … are ‘equivalent to contract’, that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract.33

I want to add only the observation I made about Candler: all this is tendentiously addressed just to the duty of the defendant and nothing is said about anything the claimant has to do to obtain the benefit of that duty. The problem that, of course, immediately arises from this, the discussion of which surely would now form a substantial library, is that, by going beyond contract and consideration one goes beyond privity, and having got rid of contractual boundaries to liability, one has to set tortious boundaries. I will simply say without argument that setting those boundaries on the basis of proximity understood as reasonable foreseeability, however this is in its turn understood, manifestly cannot work in respect of a tort which will have its main application in cases of pure economic loss.34 Other than to disavow any impression I may just have given that I believe that reasonable foreseeability is generally workable in respect of other forms of negligently caused loss, I have nothing more to say about the negligence model of liability for misstatement, and I turn to the additional ‘special relationship’ that has almost always been thought necessary to limit the reach of such liability,35 sometimes to the point it entirely displaces it, and specifically to the assumption of responsibility model of that relationship. How can a party legitimately come to rely on another party’s assumption of legal responsibility for a negligently made statement? It should contract.36 If a party contractually agrees to provide professional advice or the like, the justification for 33 Hedley Byrne (HL) (n 2) 516, 526, 528–29. As is universally known but as I shall discuss, Lord Devlin derived the phrase ‘equivalent to contract’ from the speech of Lord Shaw in Nocton v Lord Ashburton [1914] AC 932 (HL) 972. Lord Shaw, ibid, 971, had himself noted the use of the phrase ‘equivalent to a contract’ in the argument of Sir Roundell Palmer QC in Peek v Gurney (1871–72) LR 13 Eq 79 (Ch) 97. By this route, Chancery pleadings seeking to avoid liability for what, in a normal contractual situation, was a blatant intentional misrepresentation made in the wake of the Overend Gurney scandal, have become a pillar of the English law of expanded, non-contractual liability for negligent misstatement. See the text accompanying n 81. 34 NJ McBride and A Hughes, ‘Hedley Byrne in the House of Lords: An Interpretation’ (1995) 15 Legal Studies 376. 35 I put to one side all the ratiocination involved in attempting to work the special relationship back into the core of proximity as reasonable foreseeability. 36 MP Gergen, ‘Negligent Misrepresentation as Contract’ (2013) 101 California Law Review 953.

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then holding it responsible in this way is that it actually has voluntarily undertaken the responsibility. One might say that the mark of this is that the party has received a consideration, but one must understand that consideration at least purports to be the mark of the actual reason the party has undertaken that responsibility, which is not gratuitously to benefit the other party, but to obtain a bargainedfor benefit through exchange. The reach of contractual liability will not be confined to the theoretical paradigm of a bilateral express bargain supported by a discrete payment. The doctrines of consideration and privity have never showed such inflexibility,37 and this was recognised by Derry v Peek, not to speak of Hedley Byrne, unproblematically including ‘fiduciary relationships’ among the grounds of liability. Now, even in a contractual context the categories of fiduciary relationships are not closed, and indeed their proliferation has on occasions proven hard to keep in check, but when they arise from contracts, fiduciary relationships do (or should) partake of the essential quality of being paid for. But the whole point of Hedley Byrne was to move beyond contractual liability. One way in which this was bound to happen was that the understanding of ‘fiduciary’ as it related to negligence would be expanded so that its connection with contract was broken.38 But, more importantly, this was merely a subordinate part of what was essential to the assumption of responsibility model, which is that it is used to describe situations about which the last thing that could be said was that there actually was an assumption of responsibility. Lord Devlin’s identification of a category of ‘relationships which … are “equivalent to contract”, that is, where there is an assumption of responsibility in circumstances in which, but for the absence of consideration, there would be a contract’,39 was intended ‘to settle the law so that the presence or absence of consideration makes no difference’.40 But a contract without consideration is not a contract, and by ‘equivalent to contract’ Lord Devlin meant something entirely different to contract. This, with the greatest respect but one has to say, very unhelpful equivocation was at the heart of the assumption of responsibility model from the outset. Summarising the speeches of his brethren in Hedley Byrne, Lord Devlin said: ‘I do not understand any of your Lordships to hold that it is a responsibility imposed by law upon certain types of persons or in certain sorts of situations. It is a responsibility that is voluntarily accepted or undertaken’.41 I can neither interpret this as a flat inability to understand the issue, which I find hard to attribute to this 37 An instructive example of a ‘contractual structure’ may be found in Norwich City Council v Harvey [1989] 1 WLR 828 (CA). I fully acknowledge that the recognition of an implicit intention to create a third party beneficiary in the Contracts (Rights of Third Parties Act) 1999 (UK), s 1(1)(b) has substantially improved the contractual position with regard to Hedley Byrne situations. 38 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL) 205 (Lord Browne-Wilkinson). 39 Hedley Byrne (HL) (n 2) 529. 40 ibid 532. 41 ibid 530.

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most intellectually gifted of judges, nor as ratiocination aimed at unscrupulously getting one’s way, which I find almost as hard to attribute to this most decent of legal professional men. I will try to explain how Lord Devlin came to see things this way below. But, however this is, he avoided the basic issue. One can voluntarily make a statement and indeed intend it be relied upon, but whether one voluntarily assumes the indemnification of the reliance is a quite separate matter. This can be determined by assessing what the parties intended, which is a matter of contractual interpretation, or be determined by imposing the indemnification and then reading this back into the ‘voluntary’ assumption of responsibility. The more that the assumption of responsibility model is based on the Henderson v Merrett ‘objective’ assumption of responsibility,42 the more it departs from a voluntary assumption of responsibility, as was latent in Hedley Byrne from the outset.43 It is not going far enough to say that, if one decouples ‘voluntary’ and ‘assumption’, one decouples ‘assumption’ from its legitimate meaning in a way of which only Humpty Dumpty could approve. One is, in fact, calling an imposition an assumption in a Newspeak fashion of which only Minitrue could approve.44 I would hope to be allowed to claim, on the basis of previous work, that I am not insensitive to the shortcomings of the law of contract in general or the doctrine of consideration in particular. But I nevertheless can clearly recall the incredulity with which I read the following 1998 dicta of Lord Steyn in Williams v Natural Life Health Foods Ltd: [T]he restricted conception of contract in English law, resulting from the combined effect of the principles of consideration and privity of contract, was the backcloth against which Hedley Byrne was decided and the principle developed in Henderson’s case … while the present structure of English contract law remains intact the law of tort, as the general law, has to fulfil an essential gap-filling role. In these circumstances there was, and is, no better rationalisation for the relevant head of tort liability than assumption of responsibility.45

Was Lord Steyn really saying that defects in the law of contract meant that we should turn to negligence? I thought it significant that, if this was his position, he seemed unaware that it repeated the argument made by Professor Markesinis a decade earlier that an ‘expanding tort law’ was ‘the price of a rigid contract law’.46 This argument was an encomium to the House of Lords’ decision in Junior Books

42 Phelps (n 11) 654 (Lord Slynn): ‘assumption of responsibility by the person concerned … means simply that the law recognises that there is a duty of care. It is not so much that responsibility is assumed as that it is recognised or imposed by the law’. 43 I refer the reader back to Barker (n 8) and to the response in Beever (n 6) 304–10. 44 Smith v Eric S Bush [1990] 1 AC 831 (HL) 839D: ‘If, and to the extent that, an assumption of responsibility is essential for the recovery of pure economic loss in damages there is no logical reason why such assumption of responsibility has to be voluntary if the relationship between the parties or the nature of the service provided is such that an assumption of responsibility can be deemed or inferred or imposed by the law’. 45 Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) 837D–F. 46 BS Markesinis, ‘An Expanding Tort Law : The Price of a Rigid Contract Law’ (1987) 103 LQR 354.

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Ltd v Veitchi Co Ltd,47 of which our appellate judges had in that intervening decade become so ashamed that they tried to airbrush it from legal history in a manner most unusual if not unique, effectively overruling it in the Court of Appeal.48 One immediately thinks that Lord Steyn proposed to jump from the frying pan into the fire, but this is not enough. He proposed to jump from a sometimes uncomfortably hot bath into a ladle of molten metal. Though Lord Steyn simply discounted it,49 I have nothing to add to Professor Hepple’s conclusion, based on a compelling comparative assessment of the ways the law has been advanced in contract and in negligence, that ‘The way to create liability in situations “equivalent to contract” was surely to broaden the conception of contract’.50 What I might add to Hepple, however, is to say that Lord Steyn did not really have specific defects in the law of contract in mind. He had it in mind that contract was defective tout court.51 He found it unacceptable that contract could place limits on the indemnification of a claimant when the defendant objectively had assumed responsibility. This position is tenable only if one has a complete lack of sympathy with the core value of liberal economics, which is the autonomy of economic actors institutionalised in freedom of choice or contract. It overwhelmingly is the case that such consideration as economics occasionally receives from those whose strength is in law is framed in terms of evaluating the efficiency with which, as it is very tellingly put, ‘society’s resources’ are utilised. It is undeniable that the law of negligent misstatement, indeed of negligence and much other rights discourse, has proceeded in blithe ignorance or disregard of the fact that the creation of rights imposes costs as well as confers benefits. But even when it is realised that taking a decision to indemnify reliance on a statement imposes costs, the issue is viewed from the theoretical perspective of a planner who is able to determine whether the contractual outcome or the tortious outcome is superior. This implies that the planner, speaking on behalf of ‘society’, is

47 Junior Books Ltd v Veitchi Co Ltd [1983] 1 AC 520 (HL). In the haste to advance negligence, the possibility of contractual liability in Junior Books was never, in my opinion, properly considered. Junior Books was influentially analysed as turning on an assumption of responsibility akin to Hedley Byrne: Yuen Kun Yeu v AG of Hong Kong [1988] 1 AC 175 (PC) 196E–97C. 48 Simaan General Contracting Co v Pilkington Glass Ltd (No 2) [1988] QB 758 (CA) 784 (Dillon LJ). I do not deny that Junior Books still haunts the current law as an instance of the very attitude which it is the purpose of this chapter to criticise: eg Plant Construction plc v Clive Adam Associates (a firm) (Ford Motor Co, Third Party) (1997) 55 Construction Law Reports 41 (CA), an unsuccessful attempt to revive something akin to Junior Books liability in the wake of Henderson v Merrett. 49 Williams (n 45) 837D. 50 B Hepple, ‘Negligence: The Search for Coherence’ (1997) 50 Current Legal Problems 67, 88. The essence of Hepple’s argument had been made with reference to Junior Books as well as Hedley Byrne in JG Fleming, ‘Comparative Law of Torts’ (1984) 4 OJLS 235, 240–1. 51 His chilling threat in Williams (n 45) 837F, that the Lords might find it ‘necessary … to re-examine the principles of consideration and privity of contract’ has not been carried out, but that the threat was made is indicative of a cast of mind. However, one is pleased to say that Lord Steyn’s principal contractual innovation, formal acknowledgement of reasonable expectations, has so far been on balance a clear benefit, but this is because it is in best part a formalisation and not really an innovation at all.

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cognisant of an optimal use of society’s resources and can decide which outcome best approximates to it.52 The criticism I have so far made on Hepple’s authority is one of lack of computational competence. How can the thinking Lord Steyn expresses dare to claim that it can identify an optimal use and assess an outcome’s proximity to it? It can’t. But this is not the main point, which is that it shouldn’t. When an economic actor chooses to rely on a statement, then, as the statement could be wrong, the actor creates and bears a risk. Whether and to what extent the actor nevertheless chooses to rely is, in the first instance, a personal matter. But it is no longer a personal matter if reliance includes indemnification of the risk that the statement is wrong, for this requires the actor to obtain the good of indemnification from another. Putting aside direct indemnification by the government, indemnification may be bought from the party making the statement (or from an insurer, a situation I also shall put to one side). How much, if any, indemnification should an actor buy? If the economy is one which respects the actor’s choice, then no one can know other than the actor herself. The choice is a function of both the situation the actor faces and her capacity to decide, and that capacity to decide is, precisely, hers, expressing her status as an autonomous actor. In advance of the buyer ‘revealing’ her preferences by her choice, it is senseless to talk of having the information by which the optimum can be determined and so approximations to that optimum assessed, for the optimum is derived from the choice, and if an optimum is chosen by someone other than the actor, it is not an optimum. Liberal democratic society’s basic claim to legitimacy rests not on the moral value of particular social goals set by that society, but on the extent of the freedom of its citizens to set their own goals. One may say that the goal of liberal democratic society should be to eschew the pursuit of particular social goals and to maintain neutrality between the goals set by its citizens. In particular, the claim that the market economy is efficient is not a claim that that economy efficiently produces a particular set of morally valued goods but that goods are produced according to the choices of economic actors. In the rather formal, but I think helpful to those who I anticipate might read this chapter, terms of neo-classical economics, the first theorem of welfare economics, Pareto optimality, identifies a perfectly efficient distribution of goods as an equilibrium established under conditions of general competition in which mutually beneficial exchanges have taken place in complete accordance with the voluntary choices of economic actors. Under general competition, goods will be exchanged up to the point where the increase in one actor’s utilities achieved by further exchange would be more than offset by the diminution in the sum of another actor’s. At this point, the market is in equilibrium because there are no 52 Weir has the House of Lords in Hedley Byrne ‘on a trip to Mount Olympus’, but I fear his criticism, of something done in the swinging sixties, is not confined to the point I am trying to make: T Weir, ‘Errare Humanum Est’ in P Birks (ed), Frontiers of Liability, vol 2 (Oxford, Oxford University Press, 1994) 105 n 12.

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further mutually beneficial exchange opportunities and, vitally importantly, it has been brought there by the uncoordinated working out of voluntary exchanges, which automatically identify the point of Pareto optimality by reaching equilibrium. The beautiful symmetry of the model lies in its being driven by voluntary exchange and working only because it is so driven. This is the source of the power of the rejection of ‘patterned principles’ of distribution in favour of the ‘pure procedure’ of the market in liberal political philosophy, for any state imposition of a ‘fair’ distribution of goods must prevent the perfectly efficient distribution which would be voluntarily reached at general competitive equilibrium. Efficiency, in sum, is not a matter of the achievement of an objectively determined optimum but the actualisation of a procedure in which the optimum is identified by the voluntary choices of economic actors. Under general competition, transacting is costless and so economic actors’ choices are made with perfect information and are perfectly well expressed in the actors’ negotiations. Such general competition is, of course, purely theoretical, and the concept of Pareto optimality is akin to what Kant called a ‘regulative’ idea or principle. It states an end which is of great value in ordering our thought and action, though it is not vouchsafed to us to realise that end. Pareto optimality allows us to understand the nature of autonomous economic action, but it is of no direct value at all to the analysis of any empirical process of Pareto optimisation, of which the complete satisfaction of voluntary choices is the unrealisable but nevertheless essential goal. Under all empirical conditions of choice, with information and negotiation costly and imperfect, risk is universal, and the way one handles this risk is a most important part of one’s qualities as an autonomous economic actor. It makes no sense whatsoever to speak of handling only the upside of risk. Unless there is a possibility of suffering the consequences of one’s mistakes, one cannot make an economic choice. There is a very compelling argument that the possibilities both of making a gain and of suffering a loss provide the best incentives to rational economic action. But it is much more important to acknowledge that autonomous economic choice cannot exist without the possibility of success and failure. If the government intervenes to prevent or limit either or both by means backed by its monopoly of violence, this is a coercive overriding of autonomy, and the political justification of such intervention is possible only if this is acknowledged at the outset. As Kant himself somewhat imperfectly understood, autonomy is by no means the only value which a system of (social) justice, as opposed to a system of (personal) morality, must respect, and such justification is entirely possible. Practical welfare economics have to contemplate many second, not first, best choices which are given effect by coercive transfers, the principle of which runs entirely counter to Pareto optimality. Nevertheless, the technicalities of neo-classical economics are expressive of fundamental moral rights and duties which emerge from acknowledging the autonomy, and therefore responsibility, of economic actors.

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It is, as a normal case, economically irrational and, what is the same thing, morally unjust that one’s choice to rely on a statement is legally indemnified without one having to pay for the benefit of the indemnification. Exactly the wrong position about this was established by Hedley Byrne and then adopted, and of course extended, in the cases which have found liability on the basis of it. The process, one trusts, reached its doctrinal culmination in Henderson v Merrett, which, in its opening of the possibility of indemnification, effectively by everyone who ultimately pays the costs of insurance, of certain claimants who categorically should in private law have suffered the consequences of their contractual position,53 is the second most unjustifiable modern case I can recall in almost 40 years of study of English private law.54 That the finding of tort liability extended the limitation period to the advantage of the claimants seems to have been treated as the justification of that finding,55 a deplorable petitio principii wholly expressive of the tendentiousness of Hedley Byrne reasoning. I hope I am not putting words in his mouth if I say that, in the casenote on Hedley Byrne I have mentioned, Weir said all that I would like to say about what was done in that case, and I will quote him by way of conclusion of this section of the chapter: Now a law journal is no place for considerations of justice, but a glance at the plaintiffs in [the] line of cases [culminating in Hedley Byrne] reveals that their claims to redress are not indisputably high. They made bad business deals, having taken only a free opinion before hazarding their wealth in the hope of profit, no part of which, had it eventuated, would they have transferred to the honest person whom they now seek to saddle with their loss. The defectiveness of a system which refuses in such a case to sever the risk of loss from the chance of profit is not obvious. It would admittedly be defective if it were made impossible for the investor to share the risk, but … the plaintiffs here could have found a credit investigation agency; had they done so, the system would have afforded them a remedy, through the appropriately commercial institution of contract, against such of their advisers as were careless; the risk on the adviser would be justified by the fee. One can hope, perhaps, that in most cases it will continue to be ‘reasonable’ to rely only on a word one has bought … A free tip is relevantly distinguishable from a remunerated opinion.56

53 There were, of course, numerous distinguishable classes of claimants, whose specific positions turned on various issues, in this case and in all the associated litigation, and I intend my remarks to apply only to the limitation issue. I put to one side that the plight of these claimants was itself substantially caused by preposterous negligence litigation. 54 The most unjustifiable is Tito v Waddell (No 2) [1977] Ch 106 (Ch). This is an impeccable contract judgment by one of the greatest equity judges of recent times, but it was an occasion of national and international disgrace that the matter was treated as one of private law at all. 55 Henderson (n 38) 194A (Lord Goff): ‘I do not find it objectionable that the claimant may be entitled to take advantage of the remedy which is most advantageous to him’. The qualification which Lord Goff immediately goes on to make to this is, with respect, precisely what it is the burden of his speech to completely undermine. 56 Weir (n 13) 218–19. See further n 72.

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III. Why was Contract Thought not to be Good Enough? I want briefly to add to what I have just said, which focused on the position of the claimant, by reversing the focus and looking at the position of the defendant. What I want to say conveniently emerges from the following hypothetical example given by Lord Devlin: If a defendant says to a plaintiff: ‘Let me do this for you; do not waste your money in employing a professional, I will do it for nothing and you can rely on me’, I do not think he could escape liability simply because he belonged to no profession or calling, had no qualifications or special skill and did not hold himself out as having any. The relevance of these factors is to show the unlikelihood of a defendant in such circumstances assuming a legal responsibility, and as such they may often be decisive. But they are not theoretically conclusive and so cannot be the subject of definition. It would be unfortunate if they were.57

The process of contractual negotiation gives the party making the statement the opportunity to determine the extent of its own liability with precision according to its own preferences. One possibility is that it could agree to indemnify the statement gratuitously, but this could only be done by the clearest words and would best be done backed by nominal consideration, a device which has been subject to much undeserved (as well as much deserved) criticism.58 Can liability for negligent misstatement based on an assumption of responsibility which it is simply a pretence to say is voluntary, and so cannot be as fine grained as contract and must, when appellate courts shift the boundaries of negligence, periodically spring surprises of a sort the general principles of the common law of contract are an attempt to avoid, be thought to be superior to this? The best possible justification of Hedley Byrne would be that it was a response by the law of tort to a situation in which the law of contract had proven to work unacceptably badly; an instance of, to use the welfare economics term, market failure.59 But the comments I have made on Lord Steyn’s position in Williams v 57

Hedley Byrne (HL) (n 2) 531. Even in Weir (n 13) 219. 59 Neoclassical economics by no means claim that the establishment of a Pareto optimal equilibrium conveys approval of the moral or political substance of that equilibrium. An equilibrium produced by the voluntary choices of consumers of pornography is not morally justified because it is produced by voluntary choices. Nor does an equilibrium’s being efficient carry any connotation that it is just, for it is efficient based on the underlying distribution of endowment, and this may be unjust. So an intervention, such as extending free indemnification in the circumstances of Yianni v Edwin Evans and Sons [1982] QB 483 (QB); approved in Smith (n 44), might be claimed to be a justified redistribution. The difficulties of the justification are, of course, as nothing to appellate courts which believe themselves to know and to be able to give effect to the ‘notions of distributive justice’ of ‘the ordinary person’: White v Chief Constable of South Yorkshire Police [1999] 2 AC 455 (HL) 510E. But for those unable to make this assumption, Herculean in Dworkin’s sense, this is, I am afraid, the statement, not of a solution, but of a very profound problem indeed. If one had sat down to write an examination problem requiring appreciation of this, one could not have done better than raise the issues considered so wisely, but unavailingly, in the dissent of Aldous LJ in the deplorable Merrett v Babb [2001] QB 1174 (CA) [65]–[87]. 58

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Natural Life Health Foods Ltd apply equally to Denning LJ in Candler and the House of Lords in Hedley Byrne. They did not seek to identify defects in the law of contract. Their views were too blunt to explore the possibilities of market failure in any detailed sense, but this was as well as it would be preposterous to maintain that the claimants in those cases were, or in the typical Hedley Byrne case are, ‘vulnerable’ or anything other than contractually competent. This bluntness was thought good enough because it was believed that the law of contract tout court had failed. My argument has been that there is no mischief addressed in Hedley Byrne. The dog barked when there was nothing to bark at. But, of course, it was believed that there was a mischief. It was the law of contract itself. This is most apparent, of course, in those cases of concurrent liability such as Henderson v Merrett where negligence sets aside contractual limitations. I am conscious that I have not paid sufficient attention to the fact that Heller and Partners Ltd was not actually found liable. However, I do not propose to discuss the detailed relationship of contract and tortious liabilities as it has been developed after Hedley Byrne, for though that detail is of the greatest importance to parties in situations at wherever the boundary of negligence liability currently is drawn, it is the basic overriding of contract by tort that is of relevance here. It perhaps shows that Hedley Byrne was heard prior to Dorset Yacht that we have seen that Lord Devlin feared that it would have stretched credulity to have claimed that the defendant had voluntarily assumed responsibility for a statement which was given with a categorical express disclaimer. But, of course, the possibility of tort trumping even a crystal clear expression of contractual intention was always latent in Hedley Byrne. It was not the ratio of the case, but it was, if I can put it this way, its principle. Though it is a principle which is, with respect, impossible to justify in economic terms, and, once the nature of economic action is properly understood, is therefore also unjustifiable in moral and legal terms, I think I know why that principle was advanced. I have earlier cited Diamond’s views as an illustration of the general criticism of the majority decision in Candler.60 I was led to these views by Professor Paul Mitchell’s excellent chapter on Hedley Byrne in Landmark Cases in the Law of Tort,61 on which I have relied heavily. Those views were particularly interesting given Diamond’s general stance, but also, as Mitchell leads one to realise, particularly politically influential, not only because of Diamond’s own eminence, but because they were the commentary on contract and tort in a very influential collection published in 1963 under the auspices of the Society of Labour Lawyers: Law Reform NOW.62 One of the editors of the collection, Gerald Gardiner QC, had 60

See the text accompanying n 25. P Mitchell, ‘Hedley Byrne and Co Ltd v Heller and Partners Ltd (1963)’ in C Mitchell and P Mitchell (eds), Landmark Cases in the Law of Tort (Oxford, Hart Publishing, 2010) 171, 182. 62 In a brief introduction to a 1983 attempt to repeat the success of Law Reform NOW, Lord Gardiner told us that ‘The book was of undoubted assistance to those of us who were concerned with the major measures of law reform carried out by the Government which was elected in October 1964’: Lord Gardiner, ‘Introduction’ in A Martin and P Archer (eds), More Law Reform NOW (Chichester, Barry Rose, 1983) ix. 61

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led for the claimants in the Lords and was shortly to become Lord Chancellor in the Wilson Government of 1964–70, and so was the Chancellor under whom the Misrepresentation Act was passed. This Government was the last British government of the post-war ‘Golden Age of capitalism’, a historically unprecedented period of continued economic success on growth, employment and inflation measures that led to a confidence about state direction of economic and social policy which now seems so extravagant that it is difficult even to adequately understand it in the sociological sense of ‘recapturing an experience’.63 The political aspiration of this Government remains identified with the speech, his first Conference speech as Leader of the Opposition, that Wilson had given to the 1963 Labour Party Conference, in which he saw his Party engaged ‘in redefining and … restating … Socialism in terms of the scientific revolution’, in order to make that socialism adequate for ‘The Britain that is going to be forged in the white heat of [that] revolution’.64 At a more general and profound level, that aspiration was given theoretical expression by the Labour intellectual and senior politician Tony Crosland, who held various offices as a Cabinet colleague of Lord Gardiner under Wilson. Crosland’s representative and at the time extremely influential views turned on his belief, as stated in 1956, that ‘the political authority has emerged as the final arbiter of economic life [and the] era of unfettered market relations is over’, and so competent was this authority’s economic management that ‘questions of economic efficiency’ were no longer ‘of primary importance’ in a Britain which stood ‘on the threshold of mass abundance’.65 Were he then to have been asked whether the UK continued to be ‘capitalist’, Crosland would have answered ‘no’.66 Though, so far as I am aware, Crosland did not directly refer to this most famous expression of post-capitalist belief within British economic thought, his views were entirely framed within Keynes’ claim that ‘the economic problem’ was in the process of being solved.67 This belief lies behind Hedley Byrne, albeit, I admit, at some considerable remove. In Hedley Byrne itself and in the cases such as Candler which led up to it, the appellate courts were conscious of law and convention which highly constrained judicial legislation, but the Lords in Hedley Byrne nevertheless did as

63 Chapters 7–13 of John Campbell’s recent biography of Roy Jenkins capture the atmosphere engendered by a ‘most optimistic assumption of ever increasing growth and future material abundance’ on which the Golden Age Labour Party formed its policies: J Campbell, Roy Jenkins, A Well-rounded Life (London, Jonathan Cape, 2014) 181. 64 H Wilson, Labour’s Plan for Science, speech given to the Annual Conference of the Labour Party (1 October 1963): http://nottspolitics.org/wp-content/uploads/2013/06/Labours-Plan-for-science.pdf,. 65 CAR Crosland, The Future of Socialism (London, Jonathan Cape, 1956) 73, 515. 66 ibid 76. 67 JM Keynes, ‘Essays in Persuasion’ in Collected Writings, vol 9 (London, Macmillan, 1971) 325–26. Crosland (n 64) 528 quotes a different passage from the ‘Essays’ ibid 529 to similar effect, and also quotes at 377 a passage from ‘The General Theory’ which, though directly addressing returns on capital, famously contemplated a post-capitalist situation: JM Keynes, ‘The General Theory of Employment, Interest and Money’ in Collected Writings, vol 7 (London, Macmillan, 1973) 221.

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they did, and others have certainly enlarged upon their work.68 They took this step because they felt compelled to extend compensation, right, justice, etc beyond the economic limitations which give the law of contract what they saw as its inherently defective shape, effectively regarding the huge possibilities of judicial legislation opened to the law of negligence by Donoghue as imposing a duty upon those who know what is right and have the power to correct what is wrong to take such steps. A process of disillusion, which can be argued to have first been manifested in the UK in the precipitous decline in the fortunes, reputation and morale of the 1964–70 Government,69 now means that we rarely speak in such high-flown terms as Denning LJ’s furthering of civilisation,70 but the motivation of current appellate reasoning about negligence is not substantially different from Denning LJ’s in 1951 or Lord Devlin’s in 1964. In all of this, ‘assumption of responsibility’ has been used to misdescribe ‘imposition of liability’, and it is disturbing that what it seems most apt to describe as a trick can be traced to one of the standing of Lord Devlin. Such a figure can act in such a way only when motivated by what one of the two greatest of modern philosophers has long shown to be a dreadfully deceptive lure: militant virtue.71

IV. What Did Derry v Peek Decide? Though it is tangential to my argument, I want briefly to say something about the way that Derry v Peek, regarded as the ultimate culprit when accounting for the inadequate reach of liability prior to Hedley Byrne and the Misrepresentation Act, has been interpreted. I again do not purport to engage in detail with the relevant law.72 I will flatly make some claims about Derry v Peek and then apply what I have said to Candler and Hedley Byrne. Derry v Peek did not confine liability for misrepresentation to fraud. One element of its ratio was that liability in the tort of deceit had to be based on proof

68 Stevens (n 13); R Buxton, ‘How the Common Law Gets Made: Hedley Byrne and Other Cautionary Tales’ (2009) 125 LQR 60. 69 Even as regards the scientific revolution which was Wilson’s particular focus, his Government quickly came to be seen as a rather dismal failure: D Edgerton, ‘The “White Heat” Revisited: The British Government and Technology in the 1960s’ (1996) 7 Twentieth Century British History 53. 70 The sophisticated are, indeed, ritually guarded in the claims they make: D Campbell, ‘Of Coase and Corn: A (Sort of) Defence of Private Nuisance’ (2000) 63 MLR 197, 203–05. 71 GWF Hegel, The Philosophy of History (New York, NY, Dover, 1956) 450: ‘Robespierre set up the principle of Virtue as supreme, and it may be said that with this man Virtue was an earnest matter’. 72 In particular, I have, when quoting a passage from Weir in the text accompanying n 56, omitted his references to Cann v Willson (1888) 39 Ch D 39 (Ch) and Woods v Martins Bank [1959] 1 QB 55 (Leeds Assizes). Subject to the note of caution I am about to enter about the way we should approach the statements of the meaning of fraud and related concepts in nineteenth-century cases, I regard these cases as amenable to the analysis of Candler I am about to put forward, and I have not come across a case which I regard as outright contradicting my views, including Le Lievre (n 21).

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of ‘actual fraud’.73 Another element was that liability for negligence normally had to be grounded in contract, but contract, ‘implied as well as express’,74 could incorporate fiduciary relationships.75 Other non-contractual ‘special relationships’ could be and had been found by the courts ‘to exist in particular cases’.76 All this was, of course, wholly arguable, and the initially residual category of special relationship has come to dominate the law of negligent misstatement in response to the perceived shortcomings of contract tout court.77 But, putting aside the general inaccuracy of this perception, it is even wrong to say that Derry v Peek meant that contract could not flexibly generate negligence liability. However, for this to work properly, such liability has to be seen alongside fraud, and this is precisely what has not happened in many decisions believed to be constrained by Derry v Peek. In Derry v Peek, a prospectus drawn up by directors seeking to encourage investment in their limited company included a seriously misleading statement about a very important aspect of the legal position of the company. This was found to have induced the claimant’s disastrous investment,78 but, given the finding that the statement was not made fraudulently, it was right that the claimant investor had no remedy. His investment took the form of a purchase of equity and, to point out the obvious, the reason he had recourse to litigation was that his holding was rendered worthless when the company was wound up. An action brought against the directors personally failed, but this was the result of the working of incorporation and limited liability, not of the law of contract. One may deplore this, as I myself do,79 but one cannot base company law, including investment in shares, on limited liability and then just pierce the veil when it suits.80 It is of course entirely right that the veil is pierced when fraud is found, but it is clear that in Derry v Peek and a great number of similar cases of the period an enthusiasm to encourage entrepreneurship which the contemporary sensibility finds so extreme that it cannot be of any relevance to the development of current

73 As was confirmed by Lord Haldane LC in Nocton (n 33) 947. What actual fraud was is, one has to acknowledge, very unclear even in this purportedly clarifying statement. It certainly was more than intent to defraud. But this is not easy to reconcile with Derry v Peek itself. 74 This is taken from the attempt by Lord Haldane LC to correct ‘the great mistake’ of taking an ‘exaggerated view … of the scope of the decision in Derry v Peek’ in Robinson v National Bank of Scotland Ltd [1916] SC (HL) 154, 157, expressly repeating the warning he had given about this in Nocton (n 33) 946–49. 75 Robinson (n 74) 157. 76 ibid. 77 A very perceptive (if, in terms of the position taken in this chapter, quite wrong) casenote on the Court of Appeal’s judgment in Hedley Byrne clearly grasped the potential of the gap between ‘fiduciary’ and ‘special’: G Dworkin, ‘The Value of a Banker’s Reference’ (1962) 25 MLR 246, 247. 78 Some suspicion about whether this was the case clearly influenced the result reached in the case: Derry (n 14) 344. 79 D Campbell and S Griffin, ‘Enron and the End of Corporate Governance’ in S MacLeod (ed), Global Governance and the Quest for Justice, vol 2, Corporate Governance (Oxford, Hart Publishing, 2006). 80 As Lord Haldane LC pointed out in Nocton (n 33) 949, statutory regulation of the issuing of prospectuses which sought to respond to Derry v Peek was passed shortly after the Lords’ decision.

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law lay behind the high threshold placed on a finding of actual fraud.81 In Peek v Gurney, the defendants did not even deny that they had intentionally misled the claimant investor in the most serious way, but they did so thinking it was best for all concerned, including the investor, that he (and the entire public) should be kept in the dark so that the company could flourish to the benefit of all. It was only after it had been given extensive consideration that a defence that the crucial information had been given, as the Master of the Rolls who heard the case put it, ‘honestly concealed from the public’,82 was rejected.83 Though Derry v Peek was right to set the threshold of fraud high, it must be understood in the context of Victorian understandings of entrepreneurship which are an outright barrier to its being in this respect a useful source of law today. Trying to do otherwise is like basing contemporary views of the responsibilities of a woman on reading The Old Curiosity Shop, long after Wilde had passed the modern judgement on the character and conduct of Little Nell.84 The finding in Candler that the advice was drawn up merely negligently but not fraudulently is questionable. But, accepting it, I still remain at a loss to understand why fraud was nevertheless not found in that case. In the contractual law of misrepresentation, a statement of opinion is not actionable. Liability has been found, however, in cases such as Smith v Land and House Property Corp,85 which are now of indisputable authority, because a party stating an opinion makes an implicit statement of fact that she honestly and reasonably believes the opinion. Recalling the facts of Candler, it is inconceivable that the defendant’s employee honestly believed that his advice, drawn up under excessive pressure in extreme haste which made proper checking impossible, would have been thought sound by the claimant if the claimant had known of these circumstances. This, I am sure, is, and I submit was, fraud. The defendant’s employee might have honestly believed what he stated was true. He could not possibly have honestly believed that what he stated was not negligent. Hedley Byrne was quite different and I regretfully must return to just how very bad a case it was to explain this aspect of it. It is in my view most implausible to think the advice given was negligent. If it was negligent, then it would have been fraudulent to represent it as good advice. The steps taken in Hedley Byrne were taken because there was no fraud. But there was no fraud because there was no negligence! 81 This climate of opinion is most interestingly examined in S Wilson, ‘Tort Law, Actors in the “Enterprise Economy”, and Articulations of Nineteenth Century Capitalism with Law: The Fraudulent Trustees Act 1857 in Context’ in TT Arvind and J Steele (eds), Tort Law and the Legislature (Oxford, Hart Publishing, 2013). 82 Peek v Gurney (n 33) 107 (Lord Romilly MR); affd on this point Peek v Gurney (1873) LR 6 HL 377 (HL). 83 I am given to understand that possible ‘defences’ of this sort have been eliminated from the definition of fraud by false representation under the Fraud Act 2006 (UK) s 2. 84 I think that what I am about to say goes a long way to explaining the judgment actually reached by the Court of Appeal in Peek v Derry (1887) 37 Ch D 541 (CA) 565–94. But I will not pursue this as my position is that these are now matters for legal history, not legal argument. 85 Smith v Land and House Property Corp (1885) 28 Ch D 7 (CA).

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It would be absurd to maintain that Derry v Peek has not led to a great many problems, which persist.86 Proof of fraudulent intent is very difficult and civil proceedings are not really the best place to try to deal with such difficulty. One cannot, however, entirely regret this as a successful proof leads to liability to the remedies for deceit, and by far the best possible description of the law on this point is simply to say that it throws the book at the defendant. In my opinion, the issue fundamentally is one of drawing the boundary between criminal and civil liability which was canvassed in Rookes v Barnard,87 and since that case we have done no more to improve the law of deceit in this respect than we have improved the law of exemplary damages.88 But if we put this to one side, then I submit that the criticism of Derry v Peek that underlies Hedley Byrne is much overdone. Even with all its defects, the law of fraud and contractual liability in Derry v Peek could have provided a perfectly satisfactory way of dealing with Candler and with Hedley Byrne itself. It would not, however, have been the way those who thought the law of contract was itself the problem would have wished. In Hedley Byrne, it would have been its opposite, and it was this entirely correct outcome that was thought a mischief in Hedley Byrne.

V. Conclusion I want to try to make my argument in this chapter as clear as possible by concluding on a personal note rightly found rare in academic writing and for which I apologise. I have nevertheless been led to do this because of criticisms of previous statements of my views. If I knew another way to achieve this clarification, I would take it. I am a socialist whose political views are, I hope, a not unmediated but certainly clear enough reflection of his having been born in 1958 into a working class, mining community in the north-east of England. My family, most of the friends of my childhood and adolescence, and myself have been greatly enriched by the British welfare state. A necessary condition of my now being an academic writing this 86 They are the background to the less satisfactory aspects of the important recent judgment of Leggatt J in Yam Seng Pte Ltd v International Trade Corporation Ltd [2013] EWHC 111, 1 All ER (Comm) 1321 (QB). See D Campbell, ‘Good Faith and the Ubiquity of the “Relational” Contract’ (2014) 77 MLR 475. Limitations of space meant that I was unable in this comment to draw attention to how far Lord Haldane had, in Nocton v Lord Ashburton and in Robinson v National Bank of Scotland Ltd, himself stressed a general duty of honesty. 87 Rookes v Barnard [1964] AC 1129 (HL). Lord Devlin, Lord Hodson, Lord Pearce and Lord Reid heard both this case and Hedley Byrne. The atmosphere of the civil proceedings in the tranche of cases around Peek v Gurney and Derry v Peek was very heavily influenced by the (threat of) criminal prosecution of the defendants. 88 I am conscious of my shortcomings in having no idea of how to pursue what seem to be the possibilities of doing this which are opened by the availability of a compensation order under the Powers of the Criminal Courts (Sentencing) Act 2000 (UK), s 130 following conviction under the Fraud Act 2006, s 1.

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chapter was my being provided with a very heavily subsidised grammar school, undergraduate and postgraduate education by the welfare state. In all my work, including this chapter, I wish to defend the welfare state. But the contemporary welfare state extends far beyond the essentially Beveridgean bounds within which it is legitimate, and it is now besmirched, one might even say characterised, by interventions based on utterly slovenly economic and political arguments. These are given effect by government action which cannot respect legality otherwise it could not give them effect, and they require coercive transfers at a scale which is unacceptably restrictive of the economic freedom of common citizens. The way to defend such a welfare state is to shrink it. I believe that the compensation culture is the major obstacle to doing this. One constituent of the compensation culture is selfishness, but by far the more problematic constituent is the impulse to do good in the sense of conferring benefits on others without properly considering the cost of doing so. The compensation culture does not arise from a bilateral relationship between the claimant and those who ultimately must pay. It is a trilateral relationship in which the claimant’s claim is made possible by gatekeepers who, by use of state power, command private and public funds derived from those ultimate payers. The quality of the appellate reasoning following Hedley Byrne is abysmal. I have feared for as long as I have believed I have been able to form a judgement about this, perhaps now some 30 years, that teaching students legal reasoning by taking them through this stuff as if it was law is bound to lead to disrespect of the value of legality.89 I continue to believe it does, though, of course, there are far worse culprits at work in contemporary law schools. But what the law of negligence and these other culprits make clear is that in the maximalist welfare state the, as it were, prohibitory function of respect for legality has been very much diminished.90 The great sense in Dicey is that there are some improving government actions that can be done only at such a cost to legality that they should not be done. Dicey has had to be ridiculed in order to allow the administrative law of the welfare state to greenlight precisely actions of that sort.91 The public/private hybrid of the tort of negligence is judicial lawmaking by the courts which is the equivalent of much administrative lawmaking by the government, that is to say, in an important sense, not the making of law at all, except that, because it is legislated in court, negligence achieves what one would have thought very difficult by being generally much poorer, despite the normally infinitely higher quality of those doing

89 Rather than teach this as law, it would be better to ask students to determine how many of Fuller’s ways of failing to make law are demonstrated in Hedley Byrne cases. 90 I adopt the term maximalist from Norman Barry: N Barry, Welfare (Milton Keynes, Open University Press, 1990) 105. Of the practice of law in the maximalist welfare state, Barry tells us that ‘lawyers have become … less concerned with the adjudication of cases and more with the implementation of what they believe are socially acceptable values’; N Barry, ‘The Classical Theory of Law’ (1988) 73 Cornell Law Review 283, 291. 91 D Campbell, ‘Gathering the Water: Abuse of Rights after the Recognition of Government Failure’ (2010) 7 The Journal Jurisprudence 487, 507–31.

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the lawmaking. It is here that I am pleased to be in fundamental agreement with Beever, of some of whose views I have implicitly been critical: negligence as it now is goes far beyond what is possible if the regulation of the relevant relationships, inevitably ultimately a matter of coercion by the state, is, as it should be, a matter of lawful92 institutionalisation of fundamental private rights.93 But, without going further into the matter, Beever’s approach is based on severing legal right from economic, moral reasoning, and this fails to capture the intimate intertwining of economy and law in ‘the system of natural liberty’ that is the basis of the legitimacy of liberal democratic society and which it should be our general aim to actualise.94 The policy behind Hedley Byrne is economically irrational, and it is for this reason that it is morally wrong and the law of the attempt to give it effect is absurd. It is only because most of those involved in pleading, deciding and commenting upon negligent misstatement are so keen to do good that they do not appreciate the economic and legal costs of doing so until they absolutely must that we are in the position we are in. The fundamental problem of the compensation culture is not the ugly demands of those who directly gain from it but the beautiful complaisance of the Ladies Bountiful who bestow its riches,95 their reward in this world being the pleasure derived from the consciousness of spending others’ money better than they would themselves.

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Beever (n 6) 512–15. A Beever, ‘Our Most Fundamental Rights’ in D Nolan and A Robertson (eds), Rights and Private Law (Oxford, Hart Publishing, 2011) 64. 94 A Smith, The Wealth of Nations, 2 vols (Oxford, Clarendon Press, 1976) 687. I believe that the only possible justification of socialism is that it is necessary, as Orwell put it, ‘to preserve and even enlarge the atmosphere of liberalism’: G Orwell, ‘Inside the Whale’ in Complete Works, vol 12, A Patriot After All (London, Secker and Warburg, 2001) 110. 95 At least Farquhar’s Lady Bountiful expended her own fortune in order to perform the ‘Miracles’ she believed herself ‘to have done … about the Country here’, and it was the happiness of her own daughter that she (inadvertently) put at risk when, partly because of the generosity of her nature but also partly in response to flattery of her ‘Charity, Goodness, Benevolence, Skill and Ability’, she allowed the designing Aimwell and Archer into her household: G Farquhar, ‘The Beaux Stratagem’ in Shirley Strum Kenny (ed), The Works of George Farquhar, vol 2 (Oxford, Clarendon Press, 1988) 206. 93

Part 3

Intersections and Distributions of Liability

6 Equity as Tort? PAUL FINN

[T]his is in truth a suit in a Court of Equity for Damages. (Evans v Bicknell (1801) 6 Ves 174, 183, 31 ER 998, 1002 per Lord Eldon LC) [A]lthough, strictly speaking, [equitable wrongs] cannot be regarded as torts, this edition includes sections on breach of fiduciary duty and breach of confidence. (AM Dugdale (ed), Clerk and Lindsell on Torts, 20th edn (London, Sweet & Maxwell, 2010) para 1-06)

Some centuries ago, it was accepted that, in a range of circumstances, the Chancery Court—hence equity—could provide a surrogate tort remedy to compensate for economic loss occasioned by reliance upon another’s misrepresentation or nondisclosure. That role was greatly limited in the nineteenth century. For tort law, it seemingly was all but spent in any event once Nocton v Ashburton1 had fulfilled its purpose as providing a stepping stone to the decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd.2 Some may not have been wholly convinced that Hedley Byrne ought to belong in negligence at all.3 But there it now was, and it was for the law of tort to make of it what it would. Move forward to the 1980s and a totally different story requires telling. Again it involved equity jurisprudence. Again it concerned compensation for economic loss. In Canada, Australia and New Zealand, but to a significantly lesser extent in England, what is variously described as ‘compensation’ or ‘equitable damages’ was being made available as a discretionary remedy4 for a wide range of equitable wrongs that could occasion economic loss. Nocton v Ashburton was integral to this as well. What is notable is that these wrongs fall within the penumbrae of the law of tort and, I would emphasise, of contract law. This revolution and its provenance are the stories of this chapter.

1

Nocton v Ashburton [1914] AC 932 (HL). Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) (‘Hedley Byrne’). See P Mitchell, ‘Hedley Bryne & Co Ltd v Heller & Partners Ltd (1963)’, in C Mitchell and P Mitchell (eds), Landmark Cases in Tort (Oxford, Hart Publishing, 2010) 171, 171–73. 4 All equitable remedies are discretionary. 2 3

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The one preliminary comment that needs to be made is that there were clear implications in this emerging order for how we should today conceptualise not only tort and contract, but also equity’s place in them. Explicit recognition of this was not slow in coming. From the 1990s the editors of major English practitioner texts began to accept that tort law, as conventionally conceived, did not adequately or appropriately encompass the whole subject matter that their works reasonably ought to be seen to embrace. So beginning with its 16th edition (1989), and with little by way of fanfare, Clerk and Lindsell on Torts included a chapter on ‘Breach of Confidence’.5 In its 18th edition (2001) Clerk and Lindsell included as well a chapter on ‘Breach of Fiduciary Duty’, though this time an explanation invoking Professor Birks’ view of ‘civil wrongs’ implausibly provided the editors’ reasons.6 By the 19th edition (2006), this chapter was collapsed—more fittingly—into that on ‘Professional Liability’, on the ground that, while ‘previously peripheral’, fiduciary law was ‘now central’ to any treatment of professional liability. Clerk and Lindsell had obviously learned from Jackson and Powell on Professional Liability (as it is now entitled).7 Given the latter text’s subject matter, its authors, in their 5th edition (2002), rightly acknowledged that ‘the law relating to fiduciary duties [and] confidence … arises for increasing, frequent consideration in relation to professionals.’8 By their 6th edition, the authors accepted as well that apart from their intrinsic significance to their text, ‘fiduciary duties … provide important context for claims based on contract, tort and statute’.9 The long road leading to the integration of equity into a coherent law of obligations was presaged here. That possibility, though, is not presently of immediate concern.

I. Introduction For much of the twentieth century it was asserted with greater or lesser conviction that, express statutory conferral of power apart, equity was unable to award ‘damages’.10 What this actually signified is quite elusive. In the main it seemed to portend some limitation on the power of a court in a Judicature Act system to 5 This subject obviously owed much more to equity and to contract (express or implied) than it did to tort—until subsequently it captured that part of breach of confidence that dealt with privacy. 6 AM Dugdale (ed), Clerk and Lindsell on Torts, 18th edn (London, Sweet & Maxwell, 2001) para 1-02. 7 J Powell, R Stewart and R Jackson (eds), Jackson and Powell on Professional Liability, 7th edn (London, Sweet & Maxwell, 2013). The title was changed from Professional Negligence to Professional Liability in the 6th edition in 2007: J Powell, R Stewart and R Jackson (eds), Jackson and Powell on Professional Liability, 6th edn (London, Sweet & Maxwell, 2007). 8 ibid Preface, vii. 9 ibid para 1-002. 10 See, in particular, what is still known as Lord Cairns’ Act 1858 (21 & 22 Vict c 27) (UK), s 2, the effect of which has been maintained in Australian law: see generally, ICF Spry, The Principles of Equitable Remedies: Specific Performance, Injunctions, Rectification and Equitable Damages, 9th edn (Sydney, Law Company, 2014) 650–78.

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award pecuniary relief for losses suffered from equitable wrongs. So, for example, in Attorney-General for England and Wales v Observer Ltd (No 2),11 Lord Goff would comment: ‘The remedy of damages … in cases of breach of confidence, is now available, despite the equitable nature of the wrong, through a beneficent interpretation of the Chancery Amendment Act 1858 (Lord Cairns’ Act)’.12 Yet it manifestly was the case that pecuniary awards were regularly being made in equity as, for example, against trustees misusing or misappropriating trust property,13 against company directors for breach of their duty of care14 or against mortgagees for breach of their duty of good faith.15 I should emphasise, as I will not refer to it in detail, that the case law against trustees (and against those who stood in trustee-like positions vis-à-vis another’s property) for misuse of ‘trust property’ was voluminous and of early origin.16 To some there was a sleight of hand in all of this, if not merely a semantic quibble. The pecuniary relief ordered in equity for loss was described generically as ‘compensation’ and not as ‘damages’ (which were a creature of the common law and fell within the province of a jury). This, though, left unexplained what it was—or was thought to be—that limited the award of compensation for equitable wrongs. That something, as will be seen, stemmed from the combined effect of Derry v Peek17 and Jorden v Money.18 Initially, though, reference should be made to equity’s power to compensate in the nineteenth century. It was at least an available remedy within the exclusive jurisdiction that Chancery exercised over trustees and persons in ‘confidential or fiduciary’ relationships19—a jurisdiction which acquired much of its modern character and concerns in that century.20 Distinctly, Chancery undoubtedly had power and jurisdiction to award what were in effect ‘damages’ in respect of matters which, while they may have been actionable at law, were nonetheless ones over which a claim for equitable relief of some sort could be made—hence Lord Eldon’s comment heading this chapter.

11

Attorney-General for England and Wales v Observer Ltd (No 2) [1990] 1 AC 109 (HL). ibid 286. 13 Through the vehicle of an account. 14 See In Re City Equitable Fire Insurance Co Ltd [1925] 1 Ch 407 (CA) 427–30 and note Castlereigh Motels Ltd v Davies-Roe (1967) 67 SR (NSW) 279 (NSWCA) 285. 15 See Downsview Nominees Ltd v First City Corp Ltd [1993] AC 295 (PC) and Tomlin v Luce (1889) 43 Ch D 191 (CA). 16 See PD Finn, Fiduciary Obligations (Sydney, Law Book Co, 1978) chs 17–18. 17 Derry v Peek (1889) 14 App Cas 337 (HL). 18 Jorden v Money (1854) 5 HLC 185; 10 ER 868. 19 See generally WD Grigsby (ed), J Story, Commentaries on Equity Jurisprudence (London, Stevens and Haynes, 1884) §§ 307–28. It should be noted that this first English edition pre-dated Derry (n 17). 20 The case of defaulting trustees apart (against whom orders were commonly made to ‘make good’ neglects and defaults affecting a trust fund), most of the cases involved either the avoidance of dealings between fiduciary and beneficiary with consequential orders to return or refund property and money or else the imposition of trusts on property wrongfully acquired or on accounts of profits improperly made: see generally, Story (n 19) §§ 307–28. See also the very informative account in Warren Swain, ‘Reshaping Contractual Unfairness in England 1670–1900’ (2014) 35 Journal of Legal History 120. 12

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As Story indicated in his Commentaries on Equity Jurisprudence21 (the ‘Commentaries’) in 1884, courts of equity would not, as a general rule, entertain jurisdiction to give redress by way of compensation or damages where the sole object of a bill was for damages for breach of contract or other wrongs and injuries recognised at law. But he went on to note that ‘Compensation or damages … ought … ordinarily to be decreed in equity only as incidental to other relief sought by the bill…; or where there is no adequate remedy at law; or where some peculiar equity intervenes’.22 Of more immediate relevance to our present concerns, Maitland in his Lectures on Equity reflected that Chancery kept very clear of large portions of the province of tort—so much so that ‘if we except the province of fraud—equity has had little to do with tort’.23 The story in this chapter, though, has a deal to do with ‘the province of fraud’, and particularly as it was understood in equity. As is well known, while what constitutes ‘fraud at common law’ and ‘fraud in equity’ covered some common territory, fraud in equity had—and has—a significantly more expansive compass.24 Equity shared a ‘concurrent jurisdiction’25 with the common law26 in relation to fraud in the strict sense.27 But this to equity was only the first ‘species of fraud’.28 As Viscount Haldane put it in Nocton v Ashburton: ‘The Court [of Chancery] took upon itself to prevent a man from acting against the dictates of conscience as defined by the Court’.29 The primary concern of fraud in equity has been to preclude, or to proscribe, what is considered to be ‘unconscientious conduct’. In very large measure, conduct of this character has over recent centuries been channelled progressively through discrete principles and doctrines, and through discretionary considerations which could contrive, or preclude the award of, an equitable remedy. All of these gave 21

Story (n 19) § 794. ibid. See, eg, Phelps v Prothero (1855) 7 De G, M&G 722, 734; 44 ER 280, 285, where, in proceedings for specific performance, a claim for damages, as well as for deterioration of the property concerned, was entertained. As Turner LJ commented: ‘This court, when it entertains jurisdiction, deals as far as it can with the whole case, and not with a part of it only’; see to like effect, Spry (n 10) 646–47. 23 FW Maitland, Equity: a Course of Lectures, 2nd revd edn (Cambridge, Cambridge University Press, 1947) 19. 24 To Lord Hardwicke LC and his successors to this day: ‘Fraud is infinite and were a court of equity once to lay down rules, how far they would go … or to define strictly the species or evidence of it, the jurisdiction would be cramped and perpetually eluded by new schemes’, as quoted in M Lobban, ‘Contractual Fraud in Law and Equity, c1750–c1850’ (1997) 17 OJLS 441, 448. 25 This lost most of its significance when the two systems of law were administered in the same court in Judicature Act regimes. 26 cf F Pollock, ‘Nocton v Ashburton’ (1915) 31 LQR 93, 95. 27 Namely where a person who makes an alleged representation of fact to another, knowing the assertion to be untrue, or not caring whether it is true or false, is liable to that other who acts upon it for loss caused by the fact not being as stated or as assumed, or is silent when he or she has a duty to speak. On silence, see Brownlie v Campbell (1880) 5 AC 925 (HL) 950; W Scott, Fell & Co Ltd v Lloyd (1906) 4 CLR 572 (HCA) 581; and see generally P Finn, ‘Good Faith and Nondisclosure’ in P Finn (ed), Essays on Torts (Sydney, Law Book Co, 1989) 155–61. 28 cf Earl of Chesterfield v Janssen (1751) 2 Ves Sen 125, 155–56; 28 ER 82, 100. 29 Nocton (n 1) 952. 22

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expression to this ‘conscience’.30 Some will be referred to later in this chapter. It is through them that the modern revolution in equitable remedy has occurred. Finally, I would re-emphasise that fraud in equity provided both overlaps with and penumbrae to the law of torts, of contract and, I should add, of gifts. The points of overlap and concurrence were themselves areas of change and of misunderstanding. This was particularly so with the varying responses of all four bodies of law as they grappled with when and why representations of fact and intention and, for that matter, non-disclosure were to be made actionable. The history of the developments in tort, contract and equity and of their moving boundaries during the late eighteenth and nineteenth centuries have been explored painstakingly in the writings of Professor Lobban.31 It is too complex a story to précis here. Nonetheless, it is necessary to refer in a little detail to two particular manifestations of equity’s fraud jurisdiction. While they have suffered different fates, each has influenced modern Australian law. The first was the jurisdiction to require the making good of a relied-upon representation or else to order compensation if this could not be done (either appropriately or at all). The second was concerned with the unconscionable (or ‘fraudulent’) insistence on strict legal rights to property. While the first of these was all but extinguished, the latter doctrine, remarkably, survived the ravages of the late nineteenth century to provide one of the underpinnings of equitable estoppel in Australian and New Zealand law today.

II. The Rise and Destruction of the Jurisdiction to Make Good Representations32 By the turn of the nineteenth century Chancery had accepted that a person who knew, or who because of his position should have known, a fact that would induce or deter a person from entering into a dealing or engagement with another, but who misrepresented the true position to that person (whether knowingly or otherwise), could be held liable in equity to the representee who acted upon the misrepresentation. Likewise, a person who made a representation of intention that he would do an act which induced the representee to enter into a relationship or dealing in consequence of the representation could be held liable to the representee if the representation was not later made good. The usual cases—and they were few—related, first, to misrepresentations by such a person as to whether there were outstanding prior claims on, or interests in, 30 On this ‘refining’ of conscience, see the comments of the High Court in Tanwar Enterprises Ltd v Cauchi (2003) 217 CLR 315 (HCA) [20]–[25]. 31 See generally W Cornish et al, The Oxford History of the Laws of England, vol XII (Oxford, Oxford University Press, 2010); Lobban (n 24); M Lobban, ‘Nineteenth Century Frauds in Company Law: Derry v Peek in Context’ (1996) 112 LQR 287. 32 The following is drawn in part from my chapter ‘Equitable Estoppel’ in PD Finn (ed), Essays in Equity (Sydney, Law Book Co, 1985).

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property which the representee was considering purchasing or otherwise taking an interest in;33 secondly, to misrepresentations about the financial position of a person with whom the representee was considering dealing;34 and thirdly, to misrepresentations made as inducements to a prospective suitor to secure a favourable marriage for one’s child.35 In requiring the representation to be made good, equity used the remedial flexibility it possessed—hence resort to mandatory orders;36 to orders against the representor to repay the purchase price paid on rescission if the vendor was unable to do so; or simply, to pay compensation for the relying party’s loss. One of the most significant illustrations of the compensatory jurisdiction was Burrowes v Lock.37 An intending purchaser of a beneficiary’s share in a trust fund asked the trustee of the fund whether the beneficiary was absolutely entitled to his share. The trustee represented such was the case and that a good assignment could be made. The share was in fact encumbered and the trustee had notice of this. Though the trustee maintained he did not recollect the prior encumbrance, he was obliged to make good his representation and to compensate the plaintiff for the shortfall if the assignor-beneficiary could not make up the deficiency. As the Master of the Rolls indicated, all the plaintiff need show was: 1st, that the fact, as represented, is false; 2dly, that the person making the representation, had a knowledge of a fact, contrary to it. The Plaintiff cannot dive into the secret recesses of his heart: so as to know, whether he did or did not recollect the fact; and it is no excuse to say, he did not recollect it. At least it was gross negligence to take upon him to aver positively and distinctly, that [the beneficiary] was entitled to the whole fund, without giving himself the trouble to recollect, whether the fact was so or not.38

Importantly what was not needed to be shown was dishonesty (or ‘moral fraud’). By the mid-nineteenth century a significant body of judicial opinion could be mustered for the view that equity had a jurisdiction to compel the making good of representations of fact or intention, at least in some settings where detriment would be suffered if they were false or allowed to be falsified. It likewise would grant compensation where they could not be made good.39 Representative statements of the time were: A representation made by one party for the purpose of influencing the conduct of the other party, and acted on by him, will in general be sufficient to entitle him to the assistance of this court for the purpose of realizing such representation.40 33

See, eg, Arnott v Biscoe (1743) 1 Ves Sen 95; 27 ER 914. See, eg, Ex p Carr (1814) 3 V & B 108, 111; 35 ER 420, 421. 35 See, eg, the comments of Lord Eldon in De Manneville v Crompton (1813) 1 V & B 354, 355–56; 35 ER 138–39. 36 ie to make good the representation made. Ex p Carr (n 34) 111: ‘the Mouth of the Person who made the Misrepresentation, was shut’. 37 Burrowes v Lock (1805) 10 Ves 470; 32 ER 927. 38 ibid 476. 39 This jurisdiction has attracted attention in modern writings: see, eg, IE Davidson, ‘The Equitable Remedy of Compensation’ (1981–1982) 13 Melbourne University Law Review 349, 356–72; and see generally the writings of Professor Lobban referred to (n 31). 40 Hammersley v De Biel (1845) 12 Cl & Fin 45, 62n; 8 ER 1312, 1320 (Lord Cottenham LC). 34

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If a man who makes to another person, upon a solemn occasion, an assertion upon which that person acts, he lies under an obligation to make good his assertion.41 [The principle of] enforcement of a careful adherence to truth in all the dealings of mankind … applies to all representations made on the faith of which other persons enter into engagements, so that whether the representation were true or false, at the time when it was made, he who made it shall not only be restrained from falsifying it thereafter, but shall, if necessary, be compelled to make good the truth of that which he asserted.42

Examples of their application—all later overruled or reinterpreted—were: (1) Loffus v Maw43 where trusts were imposed on certain properties of a testator in favour of his niece, the testator having induced his niece to act as his housekeeper on the representation (not in fact honoured) that they would be left to her in his will; (2) Slim v Croucher,44 where a lessor was held liable to compensate a lender who had requested and received written confirmation from the lessor of his intention (later implemented) to grant the lease to the borrower which was to be used as security for the loan but which security was worthless as the lessor had already granted the lease to the borrower who had assigned it for value; and (3) Hammersley v De Biel45 where a father’s estate was held liable to pay £10,000, the father, in connection with marriage proposals, having induced a suitor to marry his daughter on the representation that that sum was to be settled upon her and her future children by his will. Though some antiquity was claimed for some manifestations of this jurisdiction,46 it needs to be acknowledged that it was never blessed with a coherent and discerning doctrinal expression. Sir John Romilly, its principal exponent in the mid-nineteenth century, found its justification in the unhelpful aspiration of ‘enforcing truth in all the transactions of mankind’.47 And Story in his Commentaries48 found the principles governing representations to be so consonant to the dictates of natural justice, that it required no argument to enforce or support them.49

41

Re Ward (1862) 31 Beav 1, 7; 54 ER 1037, 1039 (Romilly MR). Pulsford v Richards (1853) 17 Beav 87, 94–95; 51 ER 965, 968 (Romilly MR). 43 Loffus v Maw (1862) 3 Giff 592; 66 ER 544. 44 Slim v Croucher (1860) 1 De G, F & J 518; 45 ER 462. 45 Hammersley (n 40). 46 See, eg, Evans v Bicknell (1801) 6 Ves 174, 183; 31 ER 998, 1002 where the principle in play there was described by Lord Eldon as ‘a very old head of equity’. 47 Stephens v Venables (No 2) (1860) 31 Beav 124, 127; 54 ER 1084, 1086. 48 Story (n 19) §194 but see also §193 where a more substantial but not altogether convincing explanation is suggested. 49 More intelligible were the justifications given for granting relief in particular circumstances: a party could not be permitted to conceal his own title to property when encouraging or acquiescing in another’s outlay on, or for, that property in ignorance of that title; See, eg, Savage v Foster (1723) 9 Mod 35; 88 ER 299; a person would be guilty of ‘gross negligence’ (Burrowes (n 37) 476; 929) at least, if, having had previous knowledge of a fact, he failed to recollect that fact when making an unequivocal representation which he knew was to be relied upon in a transaction or dealing; (Hammersley (n 40)). It is open to real doubt whether such specific justifications were in fact referable to a single, a common, principle governing the enforceability of representations in equity. 42

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Complicating even contemporary appreciations of equity’s role in enforcing representations were the uncertainties and misapprehensions which existed in the minds of some judges as to the relationship of equity’s rules to those of the common law. To the extent that equity was requiring the making good of representations of intention and of voluntary promises, this gave them ‘all the force of a binding contract’,50 and to some judges, and notably Lord Cranworth, this was because the representations were ‘so made as to constitute the ground of a contract’.51 The language of contract bedevilled many of the equity cases.52 Similarly, when equity was decreeing compensation for the loss suffered by reliance on a false representation, a number of judges were to assert that they were exercising a jurisdiction concurrent with that for which the common law provided a damages remedy—albeit Chancery provided a more suitable procedure for dealing with these cases. So Slim v Croucher53—one of the compensation jurisdiction’s notable examples—was decided on the understanding that an action at law also lay. If these equations were often erroneous, they nonetheless contained the seeds of destruction for an equitable jurisdiction which could require the making good of representations and could compensate for their being false or falsified.

III. The Destruction of an Equitable Jurisdiction This process proceeded in a number of stages. The first was the idiosyncratic insistence of Lord Cranworth and Lord Brougham in Jorden v Money54 that before either equity or the common law would refuse to allow the falsification of a representation relied upon by another, the representation had to be shown to be one of fact and not merely of intention. Despite this stricture a number of judges were to persist in enforcing representations of intentions. Their principal justification was the view of Lord Cottenham in Hammersley v De Biel—approved on appeal to the House of Lords—that equity would enforce representations made for the purpose of influencing the conduct of another and relied on by that other.55 But this persistence became less tenable as the next stage of revision took hold. Lord Cranworth’s view, asserted emphatically in Jorden v Money,56 progressively won ascendancy: to be enforceable, a representation of intention had to be contractual in nature.

50

Prole v Soady (1859) 2 Giff 1, 20; 66 ER 1, 9. Maunsell v Hedges (1854) 4 HLC 1039, 1055; 10 ER 769, 775; for a detailed discussion of the confusion with contract law see D Jackson, ‘Estoppel as a Sword’ (1965) 81 LQR 84, 88–96. 52 See, eg, Dillwyn v Llewelyn (1862) 4 De G, F & J 517; 45 ER 1285. 53 Slim v Croucher (1860) 1 De G, F & J 518, 523–24; 45 ER 462, 464–65. 54 Jordan (n 18). 55 See, eg, Loffus (n 43); Stephens (n 47). 56 Jordan (n 18) 216. 51

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Any lingering hopes lower court judges may have had in maintaining the Cottenham view were dashed in Maddison v Alderson.57 Not only was Hammersley now ascribed a contract basis, by a side wind the doctrine of part performance was invoked to qualify even acts of reliance on oral contractual promises affected by the Statute of Frauds. Those earlier cases which could not be reinterpreted into this new contractual framework were overruled. Loffus v Maw,58 noted above, was one of these. In short, contract and the doctrine of consideration were driving equity from the field. Individualism and freedom of contract were supplanting the earlier commitment to fairness and good faith. The jurisdiction to enforce representations having been colonised by the law of contract, attention then turned to the grant of compensation for false representations. Now the tort of deceit came to prominence. By the 1880s the awards made in Burrowes v Lock and Slim v Croucher had secured acceptance as orthodox both in judicial opinion59 and with text writers.60 That was to change irrevocably with Derry v Peek.61 Lord Herschell in that case explicitly exempted the class of actions exemplified by Burrowes v Lock from what Derry v Peek decided.62 Its concern was an action ‘wholly and solely of deceit, founded wholly and solely on fraud’.63 And in such a case false representations were actionable if made knowing them to be so, or without belief in their truth, or without caring whether they were true or false. Nonetheless, though addressed to the common law, Derry v Peek inevitably had implications for equity—the more so given the uncertainty which had previously surrounded the relationship of the claim in equity to the action at law. Subsequent interpretation of Derry v Peek was to disavow the compensatory jurisdiction in the absence of fraud of the common law variety.64 Low v Bouverie65 has the dubious distinction of occasioning this final development. Of the two unequivocal examples of the compensatory jurisdiction for non-fraudulent misrepresentation, Slim v Croucher was held to be inconsistent with Derry v Peek and was overruled. Burrowes v Lock was reinterpreted and consigned to the law of estoppel by representation of fact. The compensatory jurisdiction for misrepresentation was limited to relieving against common law fraud. And representations, if not actionable as frauds or breach of warranties, merely provided a possible foundation for an estoppel by representation of fact. As Bowen LJ was to convince

57

Maddison v Alderson (1883) 8 App Cas 467 (HL). Loffus (n 43). 59 See Brownlie (n 27) 935–36. 60 See, eg, Story (n 19) §193. 61 Derry (n 17). For Derry v Peek and its aftermath see generally, Davidson (n 39) 362–70. 62 See Derry (n 17) 360; see also Brownlie (n 27) 935–36. 63 Nocton (n 1) 970. 64 In Nocton (n 1) 952–53 (Viscount Haldane) 964 (Lord Dunedin) rescued cases within the ‘exclusive jurisdiction’ from the wreckage Derry v Peek occasioned but in so doing seemingly excluded Burrowes and Slim—hence compensation for misrepresentation—from that jurisdiction: see Davidson (n 39) 369–70. 65 Low v Bouverie [1891] 3 Ch 82 (CA). 58

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subsequent generations: ‘Estoppel is only a rule of evidence: you cannot found an action upon estoppel’.66 Thus was born a new orthodoxy. So in 1893, for example, Lord Macnaghten was reported as observing, seemingly with some irony, ‘The old doctrine of misrepresentation seems to have fallen out of date’.67 The text writers of the time acquiesced in this new state of affairs.68 But it was not without complaint about Derry v Peek. As Professor Lobban noted: ‘Frederick Pollock was outraged by the decision, which all of Lincoln’s Inn thought was wrong’.69 Pollock’s primary objection was that an opportunity to make a desirable development in the tort of negligence had been foregone. He anticipated that, if the House of Lords affirmed the Court of Appeal, a new rule would have emerged that a man volunteering information intended to be acted on would be ‘bound to use the ordinary care of a reasonable man to see that his assertion is warranted by the fact’.70 Twenty-five years later in Nocton v Ashburton, Viscount Haldane was to reflect: If among the great common lawyers who decided Derry v Peek there had been present some versed in the practice of the Court of Chancery, it may well be that the decision would not have been different, but that more and explicit attention would have been directed to the wide range of the class of cases in which, on the ground of a fiduciary duty, Courts of Equity gave a remedy.71

Importantly, he went on to observe that the Lords who decided Derry v Peek would not have imagined that they could be taken to have cast doubt on the principles of cases decided in the exclusive jurisdiction of Chancery.72 This was to provide equity’s great escape—but not immediately, as will be seen.

IV. The Unconscionable Insistence on Strict Legal Rights to Property Here again the conduct in question involved instances of falsification of representations, or non-disclosure of facts. But unlike the jurisdiction discussed above, it had quite precise foci. Progressively from at least the early eighteenth century, 66

ibid 105. Balkis Consolidated Ltd v Tomkinson (1893) 42 WR 204, 205 (HL). See the comment of Davidson on this: (n 39) 367–68. 68 See, eg, William Whitaker (ed), White and Tudor’s Leading Cases in Equity, 8th edn (London, Sweet and Maxwell, 1910) vol 1, 474. 69 See Cornish et al (n 31) 431. The Pollock quotation comes from F Pollock, ‘Derry v Peek in the House of Lords’ (1889) 5 LQR 410, 422: see also W Gummow, ‘Compensation for Breach of Fiduciary Duty’ in T Youdan (ed), Equity, Fiduciaries and Trusts (Toronto, Carswell, 1989) 57–61. 70 Pollock (n 69) 422. 71 Nocton (n 1) 951. 72 ibid 952. As Pollock intimated in his case note of Nocton v Ashburton, one could infer ‘that Lord Haldane would have liked to get rid of Derry v Peek altogether if he had been free to do so’: see Pollock (n 26) 95. 67

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equity invoked two related doctrines to proscribe what was regarded as the fraudulent—the ‘unconscionable’—assertion by a landowner of his rights over, or interest in, property. The first doctrine had several manifestations each sharing the common characteristics of a mistake as to title acted on by one party, and knowing acquiescence (or standing by) by the party who actually had the title. In one manifestation it was considered an act of fraud for an owner of land (knowing himself to be such), first, to stand by and acquiesce in—or even encourage—another to make outlays on the land in the mistaken belief that that land was his own, and, then, later to assert his rights to the land.73 In another manifestation, as was affirmed by Chancellor Kent in the New York case of Wendell v van Rensselaer: If one man knowingly, though he does it passively, by looking on, suffers another to purchase and spend money on land, under an erroneous opinion of title, without making known his claim, he shall not afterward be permitted to exercise his legal right against such person. It would be an act of fraud and injustice, and his conscience is bound by this equitable estoppel.74

The second doctrine was where, having been led by the owner of land to believe that the land had been, or would be given to him, that person proceeded with the encouragement or acquiescence of the ‘donor’, to outlay money on the land by way of buildings (or otherwise) in reliance on the ‘gift’ or promise. In such circumstances, the owner could not subsequently assert his rights against the relying party.75 What is notable about this particular doctrine is that judges in the midnineteenth century readily analogised the cases with the enforcement of ‘contracts’ notwithstanding that their genesis lay either in an imperfect gift or a voluntary promise.76 The relief granted by equity for both doctrines was, ordinarily, to extinguish,77 qualify,78 or suspend the landowner’s right or else, more rarely,79 to allow the landowner his rights, but to require him to compensate the relying party.80 The two doctrines, which were later to become known collectively as ‘proprietary estoppel’, escaped the nineteenth century unscathed. The doctrine concerned with ‘concealment of title’ should, in any event, have been of no interest to the maintenance of coherence in contract law. Its essential concern was with one’s knowledge of another’s mistake about one’s land.81 While the forms of non-disclosure which

73 See, eg, Ramsden v Dyson (1866) LR 1 HL 129 (HL) 140–41; Dann v Spurrier (1802) 7 Ves 231; 32 ER 94. 74 Wendell v van Rensselaer (1816) 1 Johns Ch 344. There was long-standing English authority to this effect: see Savage (n 49) 37–38. 75 See, eg, Dillwyn (n 52) 521; Ramsden (n 73) 170. 76 ibid. 77 See, eg, Hunsden v Cheyney (1690) 2 Vern 150; 23 ER 703. 78 Jackson v Cator (1800) 5 Ves 688; 31 ER 806. 79 Until the late twentieth century. 80 Unity Joint Stock Mutual Banking Association v King (1858) 5 Beav 72; 53 ER 563. 81 See Willmott v Barber (1880) 15 Ch D 96.

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attracted equity’s interest might well be characterised as fraudulent, or dishonest, there was little to suggest in common law decisions that such fraud would be actionable even where dishonest. Deceit characteristically faltered when confronted with an allegation of non-disclosure.82 The other doctrine—that which could lead to imperfect gifts and voluntary promises being actionable—if vulnerable given the fate of the ‘making good’ doctrine, enjoyed a surprising future. The leading case—Ramsden v Dyson83— ‘appears to have been overlooked in Lincoln’s Inn’84 from birth. It was endorsed in a number of Privy Council appeals from New Zealand, India and Canada in which, over time, both these forms of ‘estoppel’ were reinterpreted as being founded ‘on contract express or implied’.85 Ramsden was resurrected in England again in the 1960s86 in a now more receptive judicial environment though there was initially, at least, indiscriminate mingling of the two forms of estoppel.87

V. Nocton v Ashburton and its Consequences Nocton was an unremarkable example of a solicitor’s breach of fiduciary duty when advising a client in a matter in which he had not fully disclosed his own personal interest. Though the Court of Appeal’s finding of deceit and its awarding damages against the solicitor were reversed, Viscount Haldane commented that in a case such as that was, the measure of damages in deceit as opposed to that granted in equity, raised ‘a question of form only’88 and Lord Dunedin considered the equitable remedy would ‘practically come to the same thing’.89 As is now well recognised, Viscount Haldane rescued cases within the exclusive jurisdiction of Chancery from the depredations of Derry v Peek. Moreover, it is clear he wrote with the future development of the common law in mind. He returned to the compass of Derry v Peek in Robinson v National Bank of Scotland: [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

82 See, eg, the comment of Viscount Maugham in Bradford Third Benefit Building Society v Borders [1941] 2 All ER 205, 211 (HL). The view advanced by Lord Blackburn in Brownlie (n 27) on nondisclosure being actionable as a fraud where there was ‘a duty or an obligation to speak’ languished underdeveloped in English law: see Finn (n 27) 155–61. 83 Ramsden v Dyson (1863) LR 1 HL 129. 84 K Handley, ‘Further Thoughts on Proprietary Estoppel’ (2010) 84 Australian Law Journal 239, 237. 85 New South Wales Trotting Club Ltd v Council of the Municipality of Glebe (1937) 37 SR (NSW) 288 (NSWSC) 308; and see Canadian Pacific Railway Co v The King [1931] AC 414 (PC) 428. 86 See Inwards v Baker [1965] 2 QB 29 (CA); see also Chalmers v Pardoe [1963] 1 WLR 677 (PC). 87 See, eg, Crabb v Arun District Council [1976] Ch 179 (CA); the comments of Lord Diplock in Kammins Ballroom Co Ltd v Zenith Investments (Torquay) Ltd (No 1) [1971] AC 850 (HL) 884; Taylor Fashions Ltd v Liverpool Victoria Trustees Co Ltd [1982] QB 133 (Ch) 147; and Finn (n 32) 69–70. 88 Nocton (n 1) 958. 89 ibid 965.

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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.90

Fifty years on the challenge was taken up in Hedley Byrne.91 The concern in this chapter, though, is not with Nocton’s significance for tort law. That now is a well-known story. What is not, is its contribution to a renaissance in the remedy of equitable compensation—a renaissance that began about a decade after Hedley Byrne. That it took so long is itself remarkable for a variety of reasons. Nocton itself shared much of the fate in England that befell equity jurisprudence more generally. It passed into obscurity.92 To the extent that compensatory awards were made for breaches of trust, for example, they were simply absorbed into and concealed by the long-established procedure of an equitable account for administration for wilful default or for replenishing a fund.93 And while Viscount Haldane emphasised the ‘exclusive jurisdiction’ concerning fiduciaries, the reported instances of compensation for loss against fiduciaries were few and far between in courts of the British Commonwealth.94 Even this is unsurprising. The equitable remedies that, historically, have been most sought against a wrongdoing fiduciary were the rescission of a dealing (often on terms), or a claim to property derived or profits made (the remedy being the constructive trust or account of profits) by reason of wrongdoing. When I wrote Fiduciary Obligations in the early 1970s, Nocton v Ashburton notwithstanding, I unearthed few examples indeed outside of Canada95 which 90

Robinson v National Bank of Scotland [1916] SC (HL) 154, 157 (emphasis added). See, eg, Woods v Martins Bank Ltd [1959] 1 QB 55; and see Powell et al, Jackson and Powell, 7th edn (n 7) para 2-137. Perhaps surprisingly given Haldane’s intimations in Derry and Robinson, it seems that until Hedley Byrne, the route taken to obtain damages for negligent advice was—contract apart—via the assertion of a fiduciary relationship. The consequence of this in Canada was, initially, the fusion of fiduciary obligation and negligence with the result that the giving of negligent advice by a professional advisor was seen as a breach of fiduciary duty, irrespective of any liability in tort or contract. See, eg, Gummow (n 69) 66–67; and Powell et al, Jackson and Powell, 7th edn (n 7) para 2-138. The later reaction to this in Canada was sharp: see, eg, Giradet v Crease & Co (1987) 11 BCLR (2d) 361 (BCSC) 362; Galambos v Perez (2009) 312 DLR (4th) 220 (SCC) [37]; and see P Finn, ‘The Fiduciary Principle’ in Youdan (ed) (n 69) 1, 24–26. It would seem that ‘fiduciary advisers’ in Canada have been left still with a fiduciary duty to disclose matters which would be material to the decision making exercised by the other party: see J Berryman, The Law of Equitable Remedies, 2nd edn (Toronto, Irwin Law, 2013) 480. Such is not the case, eg, in Australia: Permanent Building Society (in liq) v Wheeler (1994) 11 WAR 187 (SCWA), but see contra J Heydon, ‘Are the Duties of Company Directors to Exercise Care and Skill Fiduciary?’ in S Degeling and J Edelman (eds), Equity in Commercial Law (Sydney, Thomson, 2005); or in England: Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL) 205. 92 See P Finn, ‘Common Law Divergences’ (2013) 37 Melbourne University Law Review 509 esp 520. 93 See the discussion in Glazier v Australian Men’s Health (No 2) [2001] NSWSC 6 [36]–[56]. See also K Barnett and S Harder, Remedies in Private Law (Port Melbourne, Cambridge University Press, 2014) 206–07. 94 As JD Heydon pointed out correctly in the mid-1990s in ‘Equitable Compensation for Undue Influence’ (1997) 113 LQR 8, 9: ‘it is not easy to point to modern English instances of equitable compensation for breach of fiduciary duty’. 95 See, eg, Brickenden v London Loan & Savings Co [1934] 3 DLR 465 (SCC); Glennie v McDougall & Cowens Holdings Ltd [1935] SCR 257 (SCC) 276–77; Proprietary Mines Ltd v MacKay [1939] 3 DLR 215 (SCC); Canadian Aero Services Ltd v O’Malley (1974) 40 DLR (3rd) 371 (SCC); cases raising fiduciary issues commenced in considerable number in Canada and New Zealand in the 1970s and in Australia in the 1980s: see generally the references in Finn (n 91). 91

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considered, or awarded, compensation (or damages) for breach of fiduciary duty. Of the relatively small number of Australian fiduciary cases96—and the reasoning of some of these, such as P & O Steam Navigation Co v Johnson,97 was distorted by misconceived decisions of the Privy Council98—the leading, but long overlooked decision supporting the compensatory jurisdiction was that of Dixon AJ in McKenzie v McDonald.99 The case was one in which an estate agent, without full disclosure, bought his client’s property at an undervalue. The compensatory claim made and awarded—the property had been resold—was founded on Nocton v Ashburton and a breach of fiduciary duty. Before turning directly to the modern compensatory jurisdiction, two background observations should be made about equitable remedies and their award. The first is that remedy is discretionary;100 it must be fashioned to fit the nature of the case and the particular facts;101 and it must be appropriate in the circumstances.102 Secondly, in many instances and for many types of equitable wrong, the remedy that is most appropriate will self-select absent unusual circumstances. This is not to support some hardening of the discretionary arteries. It is simply an acknowledgement that a ‘mixture of learning, intuition and experience’ and also the purpose of the particular doctrine in issue can bring a level of predictability to the award of remedy in routine cases. Nonetheless, one cannot speak of a ‘right’ to a particular remedy.103 The stimuli for developing the compensatory jurisdiction and on a broad front began to emerge in the 1970s. The most obvious causes of these were, first, the proliferation of commercial activities and arrangements which the courts, in turn, were prepared to recognise as being fiduciary in character (heterodox though this might have been in many instances); secondly, the ballooning in those forms of economic and technological activity and research that led to the need to provide more considered protection for confidential information; thirdly, the recognition that many relationships in society—commercial, professional, private and governmental—had the potential to be ones in which one party routinely, or adventitiously, had the other in a position of significant dependence or vulnerability; and fourthly, as a driver of the legal response to these in Canada, Australia and New Zealand, the development, or exaggerated exploitation, of equitable remedies—and particularly the constructive trust—to provide disincentives to 96 I except from this cases of misuse of trust or corporate property which recurred in Commonwealth countries across the twentieth century. 97 P & O Steam Navigation Co v Johnson (1938) 60 CLR 189 (HCA). 98 See, eg, Jacobus Marler Estates Ltd v Marler (1916) 114 LT 640n (HL); and see Finn (n 16) paras 520–23; Davidson (n 39) 382–88. 99 McKenzie v McDonald [1927] VLR 134 (VSC). It has been widely acknowledged to have this significance: see Breen v Williams (1996) 186 CLR 71 (HCA) 136. 100 But informed by well-accepted principles and considerations. 101 Warman International Ltd v Dwyer (1995) 182 CLR 544 (HCA) 559. 102 See Giumelli v Giumelli (1995) 196 CLR 101 (HCA) [10]. 103 See W Gummow, ‘Equity : Too Successful?’ (2003) 77 Australian Law Journal 30, 40–41; and see generally, Grimaldi v Chameleon Mining NL (No 2) (2012) 200 FCR 296 (FCA) [503]–[584].

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exploitation of the trust, confidence, dependence or vulnerability that modern social and commercial ordering imposed on the community in their relationships and dealings with others. If the nineteenth century was the formative period for fiduciary law, the latter decades of the twentieth century were the period of unprecedented exploitation not only of fiduciary law—and its now merely satellite doctrines of breach of confidence and relational undue influence104—but of equitable doctrine more generally. The latter process began in Australia in 1983 in a series of landmark cases in the High Court.105 As the pressure on the compensation grew, two issues emerged. The first, which seems to have been resolved relatively uncontroversially, was what forms of equitable wrongdoing could attract this form of relief. While Viscount Haldane denied Derry v Peek any deleterious effect in equity’s ‘exclusive jurisdiction’, he spoke primarily of the compensatory jurisdiction only in relation to breach of fiduciary (or ‘confidential’) duty.106 But were there any limitations nonetheless on the equitable wrongs that could attract a compensatory remedy? The second issue was—and remains—controversial: what principles should inform the award, the assessment of, and the ‘defences’ to a compensatory claim? While a quickly burgeoning jurisprudence was created, this was done without the benefit of an ordered and slow-grown evolution. As to the first of these issues, it could be said by 2009 of Australian law, correctly in my view: Equitable compensation is frequently available as a remedy for breach of trust, breach of fiduciary duty, and liability under the two limbs of Barnes v Addy. It is not, however, limited to breaches of trust or fiduciary duty, but may be awarded, when appropriate, for any breach of an obligation within equity’s exclusive jurisdiction. Therefore, it is available as a remedy for breach of confidence, unconscionable conduct, undue influence and other kinds of equitable fraud.107

The forces leading to such a conclusion were experienced, albeit with not altogether uniform responses,108 in other common law jurisdictions and particularly in Canada and New Zealand. So Sir Robin Cooke’s unequivocal response in

104 Both, properly understood, are simply aspects of fiduciary law: see P Finn, ‘Fiduciary Reflections’ (2014) 88 Australian Law Journal 127; but modern scholars and judges have had great difficulty in appreciating that a fiduciary relationship (including one of confidence or influence) may be only a small or discrete part of a larger relationship which is not otherwise fiduciary. 105 See generally Finn (n 92) 518–19. 106 This latter term was at that time, as it had been since the beginning of the nineteenth century, concerned with those types of fiduciary relationships which were founded on a relationship of confidence reposed by one party and influence correspondingly possessed by the other: as, eg, client and solicitor: see Nocton (n 1) 955–57; and see, eg, Tate v Williamson (1866) LR 2 Ch App 55 (Ch) 61; Finn (n 104) 132–33; and see more generally Swain (n 20). 107 PW Young, CE Croft, M Smith, On Equity (Sydney, Thomson Reuters, 2009) para 16.1160, footnotes omitted; emphasis added. 108 Compare below, eg, the quite different English response in breach of confidence cases. The common law of England has in any event both more straitened equitable doctrines and more limited equitable remedies than obtain in Australia, Canada and New Zealand.

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New Zealand in 1990: ‘Monetary compensation (which can be labelled damages) may be awarded for a breach of confidence or other duty deriving historically from equity’.109 Similarly in Canada, compensation for loss began to be awarded in cases where rescission of a contract for some equitable wrong (eg unconscionable dealing110 or undue influence)111 was not an available remedy. Such an approach was endorsed unequivocally by the Supreme Court in Rick v Brandsema,112 where Abella J (for the Court) endorsed Professor Waddam’s view that ‘A rational legal system should surely permit the party complaining to receive a financial adjustment [ie compensation for loss] in lieu of rescission’. A remedy, it was said, should be moulded to secure ‘practical justice’. Like developments have occurred in Australia in relation to similar equitable doctrines.113 Perhaps the two most significant doctrines compelling this development beyond the fiduciary principle were equitable estoppel114 and breach of confidence. Compensation was always a possible remedy for proprietary estoppel.115 Equitable estoppel as a cause of action in Australia, unlike in England, is now no longer limited to representations, etc, relating to property rights and interests. It can extend, for example, to a ‘non-contractual promise [to] confer a non-proprietary legal right’,116 such as a voluntary promise to enter into a contract.117 Australia and New Zealand118 have in consequence brought their respective law closer to that embodied in §90 of the Restatement of Contracts, Second in the United States. Estoppels’ domain so enlarged has all the potential to develop that character that Grant Gilmore in The Death of Contract119 described as a ‘contort’. The modern evolution of equitable estoppel has a complexity that defeats brief exposition. For that reason it will not be elaborated upon here.120 Rather, the action for breach of confidence will be used to illustrate the transfiguration of what Nocton v Ashburton rescued.

109

Acquaculture Corp v NZ Green Mussel Co Ltd [1990] 3 NZLR 299 (NZCA) 301. Dusik v Newton (1985) 62 BCLR 1 (CA). 111 Treadwell v Martin (1976) 67 DLR (3d) 493 (NBCA). 112 Rick v Brandsema (2009) 303 DLR (4th) 193 (SCC) esp [66]–[68]. 113 See, eg, Smith v Glegg [2005] 1 Qd R 561 (QSC) 575; see also in England O’Sullivan v Management Agency & Music Ltd [1985] 1 QB 428 (CA) and Heydon (n 94). 114 As it is now understood in Australia since Waltons Stores (Interstate) Ltd v Maher (1988) 164 CLR 387 (HCA). 115 For a very recent example see Sidhu v Van Dyke [2014] HCA 19. 116 Waltons Stores (n 114) 426. 117 See, eg, EK Nominees Pty Ltd v Woolworths Ltd [2006] NSWSC 1172 [237]–[268]. 118 See generally A Butler (ed), Equity and Trusts in New Zealand, 2nd edn ( Wellington, Thomson Reuters, 2009) ch 19. 119 G Gilmore, The Death of Contract (Columbus, Ohio, Ohio State University Press, 1974). 120 Further reference will be made to it below when discussing the assessment principles applied in equitable compensation cases. 110

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VI. Breach of Confidence and the Compensatory Jurisdiction The action for breach of confidence—an action designed, initially at least, to protect ‘non-public’ information communicated in confidence from unauthorised use or disclosure—had its modern genesis in the first half of the nineteenth century. By the end of that century, in cases for the most part involving employers and employees, English courts showed considerable willingness to use the vehicle of implied contract to protect confidential communications. While recognising that equity had its own jurisdiction in the matter, which dated back to early in the century,121 the attraction to contract was that the remedy of contractual damages was added to the relief available for breach of confidence.122 The confident assumption in all of this—and it was articulated in twentieth-century cases— seems to have been that, statute apart, no compensatory remedy was otherwise available. Contract again was driving equity to the periphery of this body of law (save where an injunction was sought.)123 Nonetheless, the equitable obligation re-emerged because of the need to protect confidences in the many situations where contract could not feasibly be implied. And in Australia at least, it was founded on ‘an obligation of conscience’.124 It was in these cases that the explosion in equity cases began—in pre-contract dealings, cases involving third-party recipients of confidential information, industrial espionage, personal relationships, dealings with government, etc. To the extent that the cases raised the issue of compensation for a purely equitable wrong, the initial assumption in England was that ‘damages’ could only be awarded under the modern equivalent of Lord Cairns’ Act.125 Though there were departures (usually unexplained) from this view,126 it remained the orthodoxy for most of the twentieth century—hence the earlier quoted observations of Lord Goff in Attorney-General v Guardian Newspapers (No 2) regarding ‘a beneficient interpretation of … Lord Cairns’ Act’.127

121

See Abernethy v Hutchinson (1825) 1 H & Tw 28; 47 ER 1313. See, eg, Lamb v Evans [1893] 1 Ch 218 (CA) 229. 123 The above history and the problems it generated is outlined Finn (n 16) paras 297–302. 124 See Moorgate Tobacco Co Ltd v Philip Morris Ltd (No 2) (1984) 136 CLR 414 (HCA) 438. 125 Which allowed statutory damages to be awarded (inter alia) ‘in addition to, or in substitution for, an injunction’ against a breach of contract or against ‘the commission or countenance of any wrongful act’. 126 See, eg, the order made by Harman J in Nicrotherm Electrical Co Ltd v Percy [1956] RPC 272 (Ch) 281—described by Gareth Jones as ‘mildly revolutionary’ in ‘Restitution of Benefits Derived in Breach of Another’s Confidence’ (1970) 86 LQR 463, 491; and see the comments made on appeal in Nicrotherm Electrical Co Ltd v Percy [1957] RPC 207 (CA) 213–14 relating to Lord Cairns’ Act. See also Seager v Copydex Ltd [1967] 1 WLR 923 (CA), [1969] 1 WLR 809 (CA). 127 See, eg, Saltman Engineering Co Ltd v Campbell Engineering Co Ltd (1948) 65 RPC 203 (CA); Malone v Metropolitan Police Commissioner [1979] Ch 344, 360. 122

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By the mid-1970s though, alternate views were being expressed. In New Zealand, Sir Robin Cooke began to champion the view that compensatory damages were available for breach of equitable obligations generally. By the time of his decision in Aquaculture Corp v NZ Green Mussel Co Ltd in 1990, he could observe—albeit in terms unorthodox in Australia: There is now a line of judgments in this Court accepting that monetary compensation (which can be labeled damages) may be awarded for breach of a duty of confidence or other duty deriving historically from equity; [citations omitted] … we think that the point should now be taken as settled in New Zealand. Whether the obligation of confidence … should be classified as purely an equitable one is debatable, but we do not think that the question matters for any purpose material to this appeal. For all purposes now material, equity and common law are mingled or merged. The practicality of the matter is that in the circumstances of the dealings between the parties the law imposes a duty of confidence. For its breach a full range of remedies should be available as appropriate, no matter whether they originate in common law, equity or statute.128

For my own part, in light of cases such as Seager v Copydex Ltd129and Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales,130 each of which directed ‘an inquiry as to damages’ for breach of the equitable duty of confidence, I proposed in 1978 that: If justification be needed for [such cases] … no great violence to principle is wrought if they are regarded as modern developments in the compensatory jurisdiction of Equity which was so forcefully reaffirmed by Viscount Haldane … in Nocton v Ashburton.131

This development has come to pass in Australia and Canada. The position in England is less clear in relation to breach of confidence given the more ready acceptance of Lord Cairns’ Act claims. The authors of the second edition of Gurry on Breach of Confidence, published in 2012, for example, cite only one case as ‘suggesting that it is awarding equitable compensation’.132 While there has been some flirtation with Lord Cairns’ Act in Australia,133 arguably incorrectly,134 the equitable jurisdiction is now accepted and readily applied.135 As Gummow J put it, the conferral of equitable jurisdiction on a court ‘brings with it jurisdiction to grant relief by way of monetary compensation for breach of an equitable obligation, whether trust or confidence’.136 For Canada, 128

Aquaculture Corp v NZ Green Mussel Co Ltd [1990] 3 NZLR 299 (NZCA) 301. Seager (n 126). 130 Interfirm Comparison (Australia) Pty Ltd v Law Society of New South Wales [1975] 5 ALR 527 (NSWSC), [1975] 6 ALR 445 (NSWSC). 131 Finn (n 16) para 388. 132 ie Vestergaard v Bestnet Europe Ltd [2009] EWHC 1456 (Ch). See T Aplin, L Bently, P Johnson and S Malynicz, Gurry on Breach of Confidence, 2nd edn (Oxford, Oxford University Press, 2012) para 19.24. 133 See, eg, Talbot v General Television Corp Pty Ltd [1980] VR 224 (VSC). 134 Contrast J Heydon, M Leeming and P Turner, Meagher, Gummow and Lehane’s Equity Doctrines and Remedies, 5th edn (Australia, Lexis Nexis Butterworths, 2015) 24–090 and Spry (n 10) 662–63. 135 See, eg. Giller v Procopets (No 2) (2009) 24 VR 1 (VCA). 136 Smith, Kline & French Laboratories (Australia) Ltd v Secretary Department of Community Services & Health (1990) 22 FCR 73 (FCDR) 83. 129

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the Supreme Court of Canada put the matter beyond all doubt in Cadbury Schweppes Inc v FBI Food Ltd:137 financial compensation can be awarded for breach of confidence without the need to show any fiduciary duty. Given (i) the protean character of information (from the most intimately personal to the most valuable commercial or scientific secrets); (ii) the range of interests that may be affected by the manner, and the circumstances, of a breach of confidence; and (iii) the many tort analogues that, potentially, are suggested by the varying subject matter of breaches of confidence, it is unsurprising that the case law on how compensation is to be assessed in breach of confidence cases has not been reduced to settled and uncontroversial principles.

VII. The Assessment Principles—With Little Past at their Back138 This subject can be dealt with only summarily in this chapter. The Australian law principles139 governing the award of relief (by way of restitution or otherwise) for misuse or misappropriation of ‘trust property’140 are well developed and well understood. Beyond these, the principles to be applied in the award of equitable compensation for other equitable wrongs—fiduciary or otherwise—have little by way of history from which instructive lessons can easily be derived. That said we have Viscount Haldane’s guidance to this extent: the object of the remedy is to put a plaintiff ‘in as good a position pecuniarily as that in which he was before the injury’.141 Simply to ask what types of damage are recoverable is to invite controversy. Even in the heartland of the compensatory jurisdiction—fiduciary law—it exposes marked national divergences on three rather basic questions: What is a fiduciary relationship? What are fiduciary duties? What interests does this body of law protect? The gulf, for example, between Canada and Australia is marked. In Australia fiduciary duties are circumscribed—they proscribe conflicts of duty and interest (and duty and duty) and misuse of fiduciary position. For the present at least, and in my view erroneously, they are limited to protecting economic interests.142

137

Cadbury Schweppes Inc v FBI Food Ltd (1999) 167 DLR (4th) 577 (SCC) [60]. See generally Barnett and Harder (n 93) ch 9. 139 The reason for the national particularisation is that it cannot be assumed that, following the High Court decision in Youyang Pty Ltd v Minter Ellison (2003) 212 CLR 484 (HCA) on restoration of a trust fund after its misuse, the principle applied in other Commonwealth countries is identical: see generally J Glister, ‘Equitable Compensation’ in J Glister and P Ridge (eds), Fault Lines in Equity (Oxford, Hart Publishing, 2012) ch 7. 140 ie property owned, possessed, held or controlled in a fiduciary capacity. 141 Nocton (n 1) 952. This does not readily accommodate the awards of compensation currently being made in estoppel cases involving relied-upon voluntary promises which are generally measured on an expectation basis: see Giumelli (n 102) 112, 123–25. 142 See Paramaswam v Flynn (1978) 160 ALR 203 (FC) 218–21. 138

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Fiduciary relationships in consequence are narrowly contrived.143 In Canada, the fiduciary principle has found its place, for example, in parent and child and doctor and patient relationships in cases raising issues of sexual abuse, assault and sexual exploitation.144 The interest protected, and compensated for invasion in such cases belongs to realms not countenanced in Australia. In breach of confidence cases, in contrast, Australia has accepted the inevitable and journeyed beyond economic interests. Given that the law will protect personal confidences and privacy interests, the contemporary remedy has, as in other common law jurisdictions, accommodated itself to these contingencies—as witness the damages for mental distress award by the Victorian Court of Appeal in Giller v Procopets (No 2).145 As a prelude to what will next be said, it should be emphasised that issues of causation can have a quite circumscribed role in assessing compensation for loss and this because of the requirements of particular equitable doctrines themselves. So it is that in cases of rescission, there is no issue of causation where money is to be paid to return the parties to their original position.146 Nor is it usually an issue in cases where a trustee—or a ‘fiduciary custodian’—of trust property misuses or misappropriates it. The defaulting trustee or fiduciary must make good the trust property. As was said in Commonwealth Bank of Australia v Smith: The obligation to make restitution which courts of equity have from early times imposed on defaulting trustees and other fiduciaries is of a more absolute nature than the common law obligation to pay damages for tort or breach of contract … [That] obligation … was not necessarily limited by common law concepts of foreseeability and remoteness.147

Yet, in relation to a quite different doctrine, Millet LJ proposed in Bristol and West Building Society v Mothew: Equitable compensation for breach of [an equitable] duty of care and skill resembles common law damages in that it is awarded by way of compensation to the plaintiff for his loss. There is no reason in principle why the common law rules of causation, remoteness of damage and measure of damage should not be applied by analogy in such a case. It should not be confused with equitable compensation for breach of fiduciary duty.148

This has been followed in New Zealand.149 In Australia, though, the High Court has been reluctant to acquiesce in Millet LJ’s view, seemingly because it would 143

See Grimaldi (n 103) [177]. See, eg, M(K) v M(H) [1992] 3 SCR 6 (SCC); Norberg v Weinrib [1992] 2 SCR 226 (SCC); Berryman (n 91) 495. 145 Giller v Procopets (No 2) [2009] 24 VR 1 (VCA); see also in England Cornelius v De Taranto [2002] EMLR 6 (CA) 112; in New Zealand, Mouat v Clark Boyce (No 2) [1992] 2 NZLR 559 (NZCA) 569 and X v Attorney-General [1997] 2 NZLR 623 (NZHC) 634. 146 See, eg, Maguire v Makronis (1996) 188 CLR 449 (HCA) 469. 147 Commonwealth Bank of Australia v Smith (1991) 42 FCR 390 (FCDR). 148 Bristol and West Building Society v Mothew [1998] Ch 1 (CA) 17. 149 Bank of New Zealand v New Zealand Guardians Trust Co Ltd [1999] 1 NZLR 664 (NZCA) 681. 144

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involve an unacceptable convergence of an equitable remedy with common law compensatory damages.150 It nonetheless is the case, though, that scarcely concealed in any consideration of equitable compensation (outside of misuse of ‘trust property’) is the possible relationship of compensation to compensatory damages awarded at common law by available analogues. That there might be an issue here was prefigured in Nocton v Ashburton. As Lord Dunedin put it, the award there made by the Court of Appeal for deceit and the remedy in equity agreed to in the House of Lords would ‘practically come to much the same thing’.151 It was observed recently in a New Zealand text on equity, when canvassing ‘equitable damages’ in a number of common law jurisdictions: few areas have caused as many problems in the re-invention of equitable damages as issues of causation and remoteness.152 These arise on the fault-line between equity and the common law (especially in compensation cases).153 What the debate does ultimately focus upon—or at least should do so—is not with whether ‘the unique foundation and goals of equity’154 as such necessitate a permanent isolation of the equitable remedy from influences from the common law. Rather, it is whether the policy and purpose of each equitable doctrine needs to be reflected in the compensatory award itself in a way that differentiates it from any common law analogue, if that policy and purpose are to be vindicated. Even if this be so, there is still the question whether such differentiation ought be outweighed by other countervailing considerations, among which simplicity and coherence can make their legitimate demands. In Canada, for example, in fiduciary duty cases not involving misuse of trust property, two quite distinct views have been taken in Supreme Court cases. The one, accentuating the distinctiveness of fiduciary law and hence of its method of assessment and quantification of compensation, was favoured by McLachlin J. The remedy was to restore to the beneficiary what was lost by breach of duty.155 The other, favouring the common law and only parting from it where there is a cogent reason for doing so, was that of La Forest J.156 The dispute here has not altogether been stilled. The approach in Australia has accentuated the distinctive policies and purposes of trust and fiduciary law—perhaps understandably given equity’s history in Australian jurisprudence.157 Nonetheless, a claim for compensation for breach 150

See Youyang (n 139) [38]–[39]. Nocton (n 1) 965; and see Viscount Haldane to similar effect at 958. 152 Butler (ed) (n 118) 926. 153 They have provoked occasionally unscholarly controversy between those who are ardent advocates of, or defenders against, fusion (seemingly in any degree): see Sir Anthony Mason, ‘Fusion’ in Degeling and Edelman (n 91) ch 1. 154 Youyang (n 139) [39]. 155 See Canson Enterprises Ltd v Boughton & Co (1991) 85 DLR (4th) 129 (SCC) 163. 156 See Hodgkinson v Simms (1994) 35 SCR 377 (SCC). 157 See Finn (n 92); see O’Halloran v RT Thomas and Family Pty Ltd (1998) 45 NSWR 262 (NSWCA) 273. 151

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of fiduciary duty does require a causal link between breach and loss. As the High Court has emphasised: ‘there is no equitable by-pass to the need to establish causation and in questions of causation it is important to focus on the relevant equitable duty’.158 It is little wonder that it has been said that ‘Causation in equity … is not susceptible to the formulation of a single test’.159 The uncertainty in this is made the more so by a Privy Council decision, Brickenden v London Loan and Savings Company.160 It held that a fiduciary who failed to disclose material facts which his beneficiary was entitled to know in connection with a transaction, was precluded from maintaining that disclosure would not have altered the decision to proceed with the transaction because the beneficiary’s action would be determined solely by some other reason or factor. As became apparent from a New Zealand case in the 1980s, whereas a negligence case would fail on proof that a beneficiary would have so acted, the breach of fiduciary duty case on like facts could not because of Brickenden.161 There has, needless to say, been some retreat, albeit varying, from the severity of Brickenden in Commonwealth countries.162 In Australia, the High Court has provided no authoritative guidance on the matter, but has given at least some warning that we should not too readily relax that policy in the law manifest in the ‘treatment of disloyalty by non-trustee fiduciaries’. In the plurality’s view, ‘it is not self-evident that the response [to the apparent rigour of Brickenden] should rest in a general denial of the applicability of [its] reasoning … to delinquent fiduciaries, particularly solicitors and other professional advisors’.163 This said, Australian courts seem now to assume what was said in Brickenden cannot be taken ‘literally’,164 when the claim made is for compensation for loss. The loss, though, must have been sustained by the fiduciary having acted in breach of duty.165 What is apparent with the remedy more generally is that with the emphasis so often being upon fiduciary wrongdoing, little has been said explicitly about assessment of compensation in other areas of equitable doctrine.166 In relation to compensation and equitable estoppel the controversy has been between a remedy designed to reverse a plaintiff ’s detriment and one that makes good a plaintiff ’s expectation (save where the expectation is of less value than the detriment). For

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Youyang (n 139) [44] citing English authority. O’Halloran (n 157) 273. 160 Brickenden v London Loan and Savings Company [1934] 3 DLR 465 (PC). 161 See Mid-Northern Fertilisers Ltd v Connell, Lamb, Gerard & Co, unreported, 18 September 1996 (NZHC) (Thorp J). 162 Glister (n 139) 160–67. 163 Maguire (n 146) 474. 164 See Thomas v SMP (International) Pty Ltd (No 4) [2010] NSWSCR 984 [75]. 165 Maguire (n 146) 474. It is noteworthy that the same preposition ‘by’ is used in s 82 of the Competition and Consumer Act 2010 (Cth) to express the notion of causation. 166 But cf, Ithaca Ice Works Pty Ltd v Queensland Ice Supplies Pty Ltd [2002] QSC 222 [12] where trust principles were applied. 159

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the moment the latter view prevails.167 In breach of confidence cases, given both the wide variety of types of confidential information and the available analogues from property law, breach of fiduciary duty and tort, it is to be expected that a catholic approach is likely to be taken.168 What is clear, though, is that where the misused confidential information is an idea potentially capable of commercial exploitation,169 trade secrets (eg customer and price lists),170 or a business opportunity, the calculation of the claimant’s loss can pose formidable difficulties with speculation, discounting, etc needing to be employed in providing an appropriate measure for what is a counterfactual.171 Distinctly, Barnes v Addy cases for ‘knowing receipt’ and ‘knowing assistance’ are likely to be influenced by the remedy that would be awarded against a trustee/fiduciary,172 but subject to the important qualification that, because the claim is not being made against a misbehaving trustee who owed a duty of loyalty, no disciplining requirement should inform the remedy itself.173 Now to other matters. Equitable compensation is, in general, assessed at the date of determination of the proceedings according to the circumstances then obtaining and with the full benefit of hindsight.174 Nonetheless, in appropriate circumstances, the justice of the case may require the assessment to be made at some other time. Unlike in Canada and New Zealand, Australia has to date rejected punitive awards (‘exemplary damages’) being awarded when calculating equitable compensation.175 It is similarly the case that contributory negligence cannot be invoked in Australia as a justification for reducing a compensatory award, but can in New Zealand and Canada. It has been acknowledged, though, in those two countries, that a beneficiary’s trust and reliance in a fiduciary case can tell against invoking contribution or apportionment especially in advisor cases where selfreliance may not reasonably be expected.176

167 See Sidhu (n 115); there is a sufficiently large body of US case law—and some Australian—to indicate that this result has its own difficulties in those cases where the expectation cannot be made good: see, eg, EK Nominees (n 117); and see, eg, in the US, Hoffman v Red Owl Stores Inc (1965) 133 NW2d 267 (Wisc). 168 As has occurred in New Zealand: see Butler (ed) (n 118) 924–26. 169 See, eg, Talbot (n 133). 170 Ithaca (n 166). 171 It can be anticipated that such cases will emerge with increasing frequency: see P Finn, ‘Failed Collaborations: The Misappropriation of Business Opportunities, Ideas and Advantages by Prospective Co-venturers, Financiers and Brokers’ in M Pittard, A Monotti and J Duns (eds), Business Innovation and the Law (Cheltenham, Edward Elgar, 2013) ch 2. 172 See Greater Pacific Investments Pty Ltd (in liq) v Australian National Investments Ltd (1996) 39 NSWLR 143 (NSWCA) 153. 173 See Grimaldi (n 103) [674]. 174 See Greater Pacific (n 172) 154. 175 See Harris v Digital Pulse Pty Ltd (2003) 56 NSWLR 298 (NSWCA). 176 See Berryman (n 91) 493–94; Butler (ed) (n 118) 954–60.

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VIII. Conclusion The rebirth of the compensatory jurisdiction is important in its own way. It made complete—at least in Australia and, seemingly, Canada—the suite of remedies equity had available to it. However, the story told here is in fact a product of much larger developments in a number of common law systems that changed the respective courses of their law, including equitable doctrines and remedy, in the last two decades or so of the twentieth century. This is not the place to enlarge on this.177 But it does take me back to the beginning of this chapter. If, as seems the case, the early nineteenth-century jurisdiction to make good representations embodied the essentially eighteenth-century notions of fair dealing and good faith, these were all but snuffed out in the second half of the nineteenth century. The legacy of the House of Lords’ decisions beginning with Jorden v Money and ending in Derry v Peek was a new ideology in the law of obligations that made virtues of certainty and self-reliance. In England, the constraining effect of this new order on equity jurisprudence was marked and still subsists178 (though with lessening intensity) to this day.179 Chancery’s rear-guard action was fought in Nocton v Ashburton. It may have paved the way for the common law development in Hedley Byrne. Yet, in retrospect, its great achievement was to secure equity’s ‘exclusive jurisdiction’ from further depredations. This was there to be built on in Australia in the 1980s and beyond. And it was.180 Equitable doctrines and remedies were reformed. Fair dealing and good faith returned to their needed place in Australian jurisprudence.181 This time, though, they have been reinforced by comprehensive legislation.182

177 I have recently written on this in a paper entitled ‘Divergence and Convergence: The Privy Council, the Common Law of England and the Common Laws of Canada, Australia and New Zealand’, presented at the Obligations VII Conference, Hong Kong University, 16 July 2014 (to be published). 178 See Sir Anthony Mason, ‘The Impact of Equitable Doctrine on Contract’ (1998) 27 AngloAmerican Law Review 1 esp 2–3. 179 See Finn (n 92). 180 Perhaps more important than the compensatory remedy, the constructive trust achieved open recognition as a remedy in its own right: see Muschinski v Dodds (1985) 160 CLR 583 (HCA) esp 614–15; as it did in Canada: see Pettkus v Becker (1980) 117 DLR (3d) 257 (SCC). 181 See Mason (n 178) 13. 182 This commenced with the passage of the Trade Practices Act 1974 (Cth) and has been fortified over time: see now the Australian Consumer Law 2010 (Cth); esp ss 18, 20, 21, 22, 22A, 236, 237 and 243; and see also Director of Consumer Affairs Victoria v Scully (2013) 303 ALR 168 (VCA) [56].

7 Limitations on Defendant Liability for Misleading or Deceptive Conduct Under Statute: Some Insights from Negligent Misstatement* ELISE BANT AND JEANNIE PATERSON

I. Introduction Liability for having induced another to act to their detriment on the basis of a negligent misstatement can arise under the general law through a number of different avenues. The statement may be the subject of a contractual warranty. Liability may arise extra-contractually pursuant to the common law and equitable doctrines of mistake, estoppel, misrepresentation, and, following the decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd,1 negligent misstatement. All these claims have different elements and yield diverse remedial outcomes. In Australia, the plaintiff ’s first port of call will usually be statute. Section 18 of the Australian Consumer Law (ACL),2 formerly section 52 of the Trade Practices Act 1974 (Cth) (TPA), contains a broad prohibition on misleading or deceptive conduct occurring in trade or commerce. Section 18 and its associated remedial provisions3 have had a marked impact on defendant liability for misstatement in Australia. Liability under section 18 does not require any element of fault, clearly encompasses omissions and silence as well as positive statements, and opens up a ‘remedial smorgasbord’4 to the victim unparalleled at common law. It is hence rational (and correspondingly common) for plaintiffs to bring their claim arising from a negligent misstatement within the statutory regime, if not instead of, then at least in addition to, any pertinent common law claims. * This work forms part of an Australian Research Council Discovery grant project entitled ‘Remedies under the Australian Consumer Law: Evolution and Revolution’. The authors thank Holly Fairhurst, Eliza Wallace and Stephanie Murphy for their considerable assistance with this research. All errors are the authors. 1 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (‘Hedley Byrne v Heller’). 2 The ACL is contained in schedule 2 of the Competition and Consumer Act 2010 (Cth) (CCA). 3 ACL, ss 236, 237, 238. 4 Akron Securities Ltd v Iliffe (1997) 41 NSWLR 353, 364 (Mason P).

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The frequent concurrence of claims under the statute with their common law counterparts has given rise to some valuable judicial insights into their comparative elements, remedial consequences and the limiting considerations in those contexts that properly restrict defendants’ liability. Courts have stressed that it is the words of the section and the express purposes of the legislation rather than analogy with the common law that should guide the application of the statutory prohibition.5 This is appropriate given the status of the legislation as commonwealth law and the clearly stated purposes of the legislation as furthering consumer protection, a heady contrast to the law of torts where debates over purpose continue unresolved.6 Nonetheless, courts have found it useful to draw on the tort of deceit in assessing the proper measure of damages7 and utilise distinctions from that area to determine the boundaries of actionable loss.8 The result has been a generous approach taken to key statutory issues of factual causation and defendant scope of liability, which accords with the policy of the statute to promote ‘competition and fair trading and provision for consumer protection’.9 Yet despite the broad-ranging features of the prohibition in section 18, courts have considered that liability under the section should be subject to some limitations. As Gibbs CJ observed in Parkdale Customer Built Furniture Pty Ltd v Puxu Pty Ltd (‘Puxu’):10 It may have been thought that the unequal position of consumers as against the corporations which supply them with commodities justified a measure that from the point of view of the latter seems draconic, but although s. 52 is intended for the protection of consumers, it is enforceable by a trade competitor who is not a consumer (Reg. v. Federal Court of Australia; Ex parte Pilkington A.C.I. (Operations) Pty. Ltd.)11 and it is not infrequently used by one trader against a rival to protect a trade name or to prevent a passingoff. The section may have been designed to protect the weak from the powerful, but it may be used by a large and powerful corporation to restrain the activities of a smaller competitor. I am, with all respect, unable to see any reason why a section so broadly expressed and so drastic in its possible consequences should be beneficially construed … in some loose or expanded sense.

Compared to deceit, the other common law causes of action that may function in aid of consumer protection have received relatively little consideration as sources of insight into the nature of cognate statutory liability. In particular, although frequently mentioned as an analogous source of common law liability,12 the tort 5

Marks v GIO Australia Holdings Ltd (1998) 196 CLR 494, 510 [38] (McHugh, Hayne and Callinan JJ). A Robertson, ‘Policy-Based Reasoning in Duty of Care Cases’ (2013) 33 Legal Studies 119. 7 Kizbeau Pty Ltd v WG & B Pty Ltd (1995) 184 CLR 281, 291 (Brennan, Deane, Dawson, Gaudron and McHugh JJ); Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413, 460–61 [129] (Kirby and Callinan JJ). 8 See, eg, the approach to direct versus indirect (or extrinsic) loss in cases involving acquisition of assets, see text at n 53 and n 55 below. 9 CCA, s 2. 10 Parkdale Customer Built Furniture Pty Ltd v Puxu Pty Ltd (1982) 149 CLR 191, 197–8 (Gibbs CJ). 11 R v Federal Court of Australia; Ex parte Pilkington ACI (Operations) Pty Ltd (1978) 142 CLR 113, esp at 120–21, 128. 12 See, eg, Henville v Walker (2001) 206 CLR 459, 470 [19] (Gleeson CJ) and the discussion in Havyn Pty Ltd v Webster (2005) ASAL ¶55-143, 60 077–8 [117] (Santow JA, Tobias and Brownie JJA concurring). 6

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of negligent misstatement has received very little sustained analysis as an interpretive source for the operation of section 18 and related remedial provisions. This is a pity. In negligent misstatement, the search for appropriate defining criteria for defendant liability has identified a range of principles and standards that assist courts in the complex, multifactorial inquiry into the respective degrees of fault and responsibility of the parties that serve to delimit defendant liability.13 The aim of this chapter is to explore some of the potential lessons to be learned about the proper limits on defendant liability for misleading or deceptive conduct from the law of negligent misstatement. It is clearly inappropriate to interpret a statutory prohibition solely by reference to analogous common law concepts. However, common law concepts developed in the context of the tort of negligent misstatement can enlighten and inform difficult debates about the scope of statutory liability. The enquiry in this chapter reveals that, although there remain some areas where the common law action is not a good ‘fit’ with the statutory language and purpose, there exist a number of instances where concepts developed in the context of the tort of negligent misstatement have the potential properly to influence the extent of statutory liability.

II. Limiting Factors in the Law of Negligent Misstatement A. Reasonable Foreseeability is Necessary but Not Sufficient Under the common law, one way of limiting defendant liability is to restrict the circumstances in which a duty of care will arise. In the seminal case of Hedley Byrne v Heller,14 the various members of the Court framed this question in the context of negligent misstatement somewhat differently. However, all were agreed that reasonable foreseeability of harm, central in establishing a duty of care in negligence cases involving physical damage, is simply not sufficient to establish a duty in negligent misstatement.15 This conclusion has been endorsed multiple times by the High Court of Australia.16

13 Perre v Apand Pty Ltd (1999) 198 CLR 180, 220 [105] (McHugh J); Travel Compensation Fund v Tambree (2005) 224 CLR 627, 646 [56] (Kirby J). 14 Hedley Byrne v Heller (n 1). 15 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241, 249 (Brennan CJ) (‘Esanda’), discussing Hedley Byrne v Heller (n 1). 16 See, eg, Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (1976) 136 CLR 529, 573–74 (Stephen J) (‘Caltex Oil’); San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, 353–54 (Gibbs CJ, Mason, Wilson and Dawson JJ), 367 (Brennan J) (‘San Sebastian’); Hill v Van Erp (1997) 188 CLR 159, 169–70 (Brennan CJ), 174 (Dawson J), 201 (McHugh J); Perre v Apand Pty Ltd (n 13) 194 [10] (Gleeson CJ), 197–98 [26]–[27] (Gaudron J), 217 [94] (McHugh J).

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There are two main policy factors identified in the case law that are said to support this conclusion. The first arises from the inherent tendency of statements to be circulated well beyond their original and intended audience, to be put to use in ways outside their original purpose and to produce purely economic losses.17 These factors raise ‘the law’s concern to avoid the imposition of liability “in an indeterminate amount for an indeterminate time to an indeterminate class”’.18 A second policy concern is that a blanket duty to take reasonable care to avoid causing foreseeable economic loss would run counter to important norms of commercial responsibility19 and impose a correspondingly heavy burden on party autonomy.20 Here it should be recognised that there are competing considerations. Misinformation can distort the market and lead to an inefficient allocation of resources. Thus, it is legitimate to encourage parties to verify the accuracy of their statements and to qualify matters of uncertainty.21 Parties in the market have the freedom to pursue their own commercial interests but not always to the extent that their own failure to take care misleads those with whom they are dealing. On the other hand, it is also important to preserve incentives for both parties to take steps to protect their own commercial interests. Commercial parties are usually expected actively to manage the risks to which they are exposed, and the level of protection they require. Courts have noted that most parties in negligent misstatement cases are engaged in deliberate transacting behaviour that is a prime context for the use of contracts to manage the inherent risks to which they are exposed.22 If the scope of defendant liability is too broadly defined then this agreed allocation of risk is disrupted and one party becomes the insurer for the other party’s lack of care in verifying information relevant to its own interests. These considerations have led courts to be cautious about finding a duty of care in cases of negligent misstatement where the consequences of its recognition would unreasonably burden legitimate commercial conduct, particularly in circumstances where other 17 American Law Institute, Restatement (Second) of the Law of Torts (Minnesota, ALI, 1977) vol 3, § 552, cited in L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (1981) 150 CLR 225, 250 (Mason J, Aickin J concurring), see also 231 (Gibbs CJ). See also Sutherland Shire Council v Heyman (1985) 157 CLR 424, 465 (Mason J); San Sebastian (n 16) 353–54 (Gibbs CJ, Mason, Wilson and Dawson JJ), 367 (Brennan J); Bryan v Maloney (1995) 182 CLR 609, 618 (Mason CJ, Deane and Gaudron JJ), 632 (Brennan J); Hill v Van Erp (n 16) 171 (Brennan CJ), 179 (Dawson J), 192 (Gaudron J), 216 (McHugh J), 235 (Gummow J). 18 Bryan v Maloney (n 17) 618 (Mason CJ, Deane and Gaudron JJ), citing Ultramares Corporation v Touche, 255 NY 170, 179 (Cardozo CJ) (1931). See also Esanda (n 15) 272 (McHugh J); Perre v Apand Pty Ltd (n 13) 199 [31] (Gaudron J), 221 [106] (McHugh J). 19 See, eg, Caltex Oil (n 16) 551–52 (Gibbs J); Sutherland Shire Council v Heyman (n 17) 502–03 (Deane J); Bryan v Maloney (n 17) 618–19 (Mason CJ, Deane and Gaudron JJ); Hill v Van Erp (n 16) 184 (Dawson J), 192–93 (Gaudron J), 211 (McHugh J); Perre v Apand Pty Ltd (n 13) 200 [33] (Gaudron J), 219–20 [101]–[104], 223–25 [114]–[117] (McHugh J), 283 [279] (Kirby J). 20 Perre v Apand Pty Ltd (n 13) 192 [5] (Gleeson CJ), 224 [115] (McHugh J), 287 [291] (Kirby J), 299 [329] (Hayne J). See also Bryan v Maloney (n 17) 619 (Mason CJ, Dean and Gaudron JJ); Caltex Oil (n 16) 568 (Stephen J), 591 (Mason J); Sutherland Shire Council v Heyman (n 17) 465 (Mason J); San Sebastian (n 16) 353–54 (Gibbs CJ, Mason, Wilson and Dawson JJ). 21 See A Duggan, M Bryan and F Hanks, Contractual Non-Disclosure (Melbourne, Longman Professional Publishing, 1994). 22 Perre v Apand Pty Ltd (n 13) 223–25 [114]–[117] (McHugh J).

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mechanisms (such as contract) are available to mediate the risk to which parties in the position of the plaintiff are exposed. What mechanisms, then, does the law of negligent misstatement employ to limit defendant liability in the face of these policy concerns? Accepting that the cases do not all speak with one voice, it is nonetheless possible to discern a number of overlapping standards deployed by courts to assess the relationship between the parties and their relative responsibility for harm suffered. These standards, and the factors used by courts to give content to them, provide flexible and contextspecific tools for delineating the scope of defendant liability, both at the initial stage of establishing a duty of care and then in assessing the appropriate remedy for negligent misstatement.

B. The Reasonable Defendant We have seen that it has been consistently accepted in Australia and England that the requirement of reasonable foreseeability is not sufficient to meet the law’s concerns of undue and excessive liability in cases of misstatement. That is not to say, however, that the requirement is otiose. Harm that is not reasonably foreseeable will fall outside the defendant’s duty of care, just as it does in cases of negligence involving physical damage.23 The combination of circumstances indicative of a duty of care has been variously characterised. The High Court of Australia’s current preference is for a ‘salient features’ approach which emphasises the importance of taking into account a range of relevant factors, including the foreseeability of harm,24 the impact of liability upon a defendant’s commercial autonomy,25 the prospect of indeterminate liability,26 a claimant’s vulnerability (a factor that operates to exclude plaintiffs who fail to take reasonable steps to protect their own interests),27 and the defendant’s actual or assumed knowledge of the risk created by his conduct.28 Notwithstanding the diverse range of factors, courts consistently emphasise that ‘the speaker must realize or the circumstances be such that he ought to have realized that the recipient intends to act upon the information or advice in respect of his property or of himself in connexion with some matter of business or serious consequence’.29 The objective nature of the test of knowledge coupled with the element of prediction as to likely reliance suggests a similar inquiry as that into reasonable foreseeability, albeit one which is not exhaustive of the conditions for defendant liability. The knowledge requirement reflects ‘the need for caution lest a duty of care be imposed upon a 23 San Sebastian (n 16) 367, 369, 372 (Brennan J); Hill v Van Erp (n 16) 166, 174 (Brennan CJ), 189 (Toohey J), 201 (McHugh J); Perre v Apand Pty Ltd (n 13) 217 [94] (McHugh J), 299 [329] (Hayne J). 24 Perre v Apand Pty Ltd (n 13) 220 [103] (McHugh J). 25 ibid 223–25 [114]–[117]. 26 ibid 220–23 [106]–[113]. 27 ibid 225–30 [118]–[130]. See discussion below. 28 ibid 230–31 [131]–[132]. 29 Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556, 571 (Barwick CJ).

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party who has no appreciation of, and could not be expected to appreciate, the implications of making an error’.30 Relevant factors going to this enquiry include the presence and objective terms of any request for advice or information by the plaintiff, whether the statement was in writing and publicly available, whether the defendant professed to possess skill and competence in the area, or warranted that the advice was correct, and whether the defendant invited the recipient to act in reliance on the information or advice, or intended the recipient to do so.31 As to this last indicator, the role of intention in cases of negligent misstatement has not been entirely clear. Many cases have stated that a duty of care will arise where a defendant intends to induce the plaintiff to rely on her statement in circumstances where she should realise that economic loss may be suffered if the statement is not true.32 The first element seems to take a subjective approach at the expense of the usual objective enquiry. But insight into the role of intention may be found in deceit, where the defendant’s subjective intention to deceive has always offset fears of too much liability and where there has correspondingly been no requirement of reasonable reliance on the part of the plaintiff. As Brennan J stated in Gould v Vaggelas, ‘the representor does not escape liability because the representee did not believe the representation in full … [T]he representee’s self-induced gullibility is no defence to the representor. A knave does not escape liability because he is dealing with a fool’.33 Similarly, in the case of negligent misstatement, where the defendant intends to cause the reliance that has in fact occurred, it may be said that it does not lie in the defendant’s mouth to say that the reliance was not reasonably foreseeable, that their relationship was not sufficiently proximate or that the plaintiff ’s reliance was not reasonable.34 As Gibbs CJ, Mason, Wilson and Dawson JJ observed in San Sebastian Pty Ltd v The Minister, ‘[i]n cases where the defendant intends the statement to operate as a direct inducement to action, the reasonableness of the reliance will not be a critical factor’.35 It is to this latter point that we now turn.

C. The Reasonable Plaintiff As we have seen, courts have consistently incorporated objective fault-based enquiries in determining whether a defendant held a duty of care to the plaintiff. The defendant is judged against a standard of reasonable knowledge and behaviour of someone in her position. Courts have also consistently recognised that the

30

Tepko Pty Ltd v Water Board (2001) 206 CLR 1, 17 [48] (Gleeson CJ, Gummow and Hayne JJ). San Sebastian (n 16) 357 (Gibbs CJ, Mason, Wilson and Dawson JJ), 372 (Brennan J). 32 ibid 355, 357–58 (Gibbs CJ, Mason, Dawson and Wilson JJ), 371–72 (Brennan J). See also Glanzer v Shepard 233 NY 236, 241 (Cardozo J) (1922), cited in Hedley Byrne v Heller (n 1) 488 (Lord Reid). 33 Gould v Vaggelas (1985) 157 CLR 215, 252 (Brennan J). 34 Doyle v Olby (Ironmongers) Ltd [1969] 2 QB 158, 167 (Lord Denning). 35 San Sebastian (n 16) 358 (Gibbs CJ, Mason, Wilson and Dawson JJ). Cf Esanda (n 15) 257 (Dawson J); in the statutory context see De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) [2012] FCAFC 28 (15 March 2012). 31

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plaintiff ’s reliance or dependence on the statement must be reasonable.36 This requirement contains two discrete elements. The first is a requirement of factual causation. In most misstatement cases, the plaintiff will claim to have detrimentally changed his or her position in reliance on the statement. That is, the defendant’s misstatement caused the plaintiff ’s decision to act and hence suffer loss: reliance signals causation.37 This purely factual question of causation is then overlaid by the courts’ requirement of reasonable conduct by the plaintiff, an element that constitutes a very real normative restriction on the defendant’s conditions of liability.38 In order for liability to arise, the circumstances must be such that it is reasonable in all the circumstances for the plaintiff to have accepted and acted upon the defendant’s statement. The authorities reveal that courts will look very closely at a number of factors relevant to the reasonableness of the plaintiff ’s reliance: whether the defendant held or purported to hold particular skill or expertise in the area the subject of the misstatement;39 what the plaintiff knew or ought to have known about the defendant’s likely ability to make a careful and correct statement;40 whether the statement was made in a social setting or whether it was in response to a serious or formal request for information or advice;41 whether the plaintiff was in a position to check the veracity of the statement;42 whether the plaintiff was in the position to take other steps (such as entering into a contract) to protect himself from the risk of error in the statement;43 the comparative commercial experience of the parties44 and so on. All of these factors are very familiar from the law of estoppel, 36 Hedley Byrne v Heller (n 1) 486 (Lord Reid), 496, 502–03 (Lord Morris of Borth-y-Gest), 514 (Lord Hodson); Ministry of Housing and Local Government v Sharp [1970] 2 QB 223, 268 (Lord Denning MR); Scott Group Ltd v McFarlane [1978] 1 NZLR 553, 576; Mutual Life & Citizens’ Assurance Co Ltd v Evatt (n 29) 569–72 (Barwick CJ); San Sebastian (n 16) 372 (Brennan J); Sutherland Shire Council v Heyman (n 17) 461–64 (Mason J); Tepko Pty Ltd v Water Board (n 30) 16–18 [47]–[51] (Gleeson CJ, Gummow and Hayne JJ), 23–24 [75]–[76] (Gaudron J). See also Esanda (n 15) 249–50 (Brennan CJ), 255–57 (Dawson J), 261, 265 (Toohey and Gaudron JJ), 273–74 (McHugh J). 37 Indeed, the reliance requirement recognises and effectively responds to the particular causation issues that arise in negligent misstatement, for example the concern that it is the plaintiff ’s own actions which cause the loss, see, eg, San Sebastian (n 16) 353 (Gibbs CJ, Mason, Wilson and Dawson JJ). 38 Its impact on defendant liability by comparison to the role of contributory negligence considerations is significant, see text at nn 58ff below. 39 Mutual Life & Citizens’ Assurance Co Ltd v Evatt (n 29) 571 (Barwick CJ); Esanda (n 15) 262, 265 (Toohey and Gaudron JJ); L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (n 17) 230–31 (Gibbs CJ). This is reflected in the courts’ different treatment of authorities, such as seen in L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (n 17), San Sebastian (n 16); and Tepko Pty Ltd v Water Board (n 30). 40 Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1970) 122 CLR 628, 646 (Lords Reid and Borth-y-Gest), preferred in L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (n 17). 41 Mutual Life & Citizens’ Assurance Co Ltd v Evatt (n 29) 582–85 (Kitto J); Esanda (n 15) 257 (Dawson J); L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (n 17) 231 (Gibbs CJ), 239 (Stephen J). 42 L Shaddock & Associates Pty Ltd v Parramatta City Council (No 1) (n 17) 242–43 (Stephen J), 252 (Mason J, Aickin J concurring). 43 Perre v Apand Pty Ltd (n 13) 225–26 [118]–[120], 227–28 [123] (McHugh J). 44 Mutual Life & Citizens’ Assurance Co Ltd v Evatt (n 29) 570 (Barwick CJ), 582 (Kitto J), cited in Chew v Amanatidis [2009] SASC 334 (3 November 2009) [39]–[40] (Gray J), see also [10], [21], [42] (Gray J). See also Tepko Pty Ltd v Water Board (n 30) 17 [49] (Gleeson CJ, Gummow and Hayne JJ), 26 [87] (Kirby and Callinan JJ).

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where courts are also used to determining whether a plaintiff ’s decision to act in reliance on a defendant’s representation was reasonable.45 The High Court of Australia has recently emphasised that an informing consideration is the plaintiff ’s ‘vulnerability’—whether he was unable reasonably to protect himself because of ‘ignorance or social, political or economic constraints’.46 McHugh J has suggested that vulnerability subsumes the requirement of reasonable reliance.47 However, in most cases the concept appears to be another way of articulating the factors that inform reasonable reliance by the plaintiff.48 What is clear is that, however characterised, an objective fault-based standard of conduct informs this aspect of the enquiry. In summary, the previous sections have considered how the combination of overlapping standards of reasonable foreseeability, actual or assumed knowledge, and reasonable reliance operate to limit the scope of defendants’ liability by restricting the circumstances in which they become subject to an actionable duty of care. Where these conditions are not met, liability will be precluded in toto.49 The defendant will owe no actionable duty so is liable for no loss. Where, on the other hand, a duty is both found and breached, the defendant is potentially liable for all the loss caused by her breach. Defendant liability is commonly further restricted at the remedial stage, through concepts also infused with standards of reasonable conduct, such as ‘remoteness’, ‘contributory negligence’ and ‘mitigation’, requirements to which we now turn.

D. Remoteness and Reasonable Foreseeability of the Harm In the context of the law of negligence (including negligent misstatement),50 the general test of remoteness is ‘reasonable foreseeability’. This requirement plays an important, but not conclusive, role in negligent misstatement both in ascertaining the existence of a duty of care and in delimiting the defendant’s scope of liability.51 It is useful to contrast this remoteness rule with those applied for intentional torts such as deceit. In the latter cases, the test of reasonable foreseeability is inapt: there is no reason to allow a fraudulent defendant to escape liability on the basis that a reasonable person would not have foreseen the loss. The fraudster is ‘manifestly 45 E Bant and M Bryan, ‘Fact, Future and Fiction: Risk and Reasonable Reliance in Estoppel’ (2015) Oxford Journal of Legal Studies (forthcoming). 46 Woolcock Street Investments Pty Ltd v CDG Pty Ltd (2004) 216 CLR 515, 549 [80] (McHugh J). See also at 530 [23] (Gleeson CJ, Gummow, Hayne and Heydon JJ); and further Perre v Apand Pty Ltd (n 13) 225–30 [118]–[130] (McHugh J). 47 Perre v Apand Pty Ltd (n 13) 228 [124]–[125] (McHugh J). 48 Cf cases where it is dependence rather than reliance which is said to satisfy this required relationship of care between the parties: see Sutherland Shire Council v Heyman (n 17) 464 (Mason J). 49 Esanda (n 15) 265 (Toohey and Gaudron JJ). 50 See, eg, Perre v Apand Pty Ltd (n 13) 248–49 [186] (Gummow J). 51 The dual role has made the separation of duty and remoteness considerations very difficult—and perhaps unhelpful: see, eg, Spartan Steel & Alloys Ltd v Martin & Co [1972] QB 27, 37 (Lord Denning MR). Cf Jolley v Sutton London Borough Council [2000] 3 All ER 409, 418 (Lord Hoffman).

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not a reasonable person’.52 Rather, the defendant will be liable for all damage consequent on and arising directly from the fraudulent misrepresentation. Thus, where the transaction in question involves purchase of an asset, the measure of liability will be the difference between the price paid and the ‘real’ or ‘true’ value of the asset (rather than its market value at the date of acquisition), taking into account all losses in value that are inherent to the asset up until the date of trial.53 The comparison demonstrates that remoteness rules in private law are closely tied to the nature of the claim. The remoteness rule must reflect and support the reason for the law’s intervention in the particular category of case.54 The comparison also shows that the private law does not favour unrestricted liability, even in cases of flagrant wrongdoing such as deceit. Thus, while the approach to loss in the case of acquisition of an asset seems to expand the defendant’s scope of liability considerably, taking into account intrinsic losses valued up until the date of trial, it also operates to exclude losses relating to the asset that are attributable to ‘extraneous factors in the later history of the asset’.55 These extrinsic losses include losses caused by the gross negligence of the plaintiff in managing the asset.56 Objective carelessness on the part of the plaintiff also informs the final two restrictions on defendant liability, to which we now turn.

E. Contributory Negligence Contributory negligence originally operated as a very severe, bright line limitation on defendant liability: if the plaintiff was herself negligent contemporaneously or in association with the defendant’s breach of a duty of care her claim failed in toto, however slight her comparative fault might have been. The harshness of this rule was mitigated by legislative reforms that allowed courts to apportion liability by reference to the respective fault of the parties.57

52 In the context of injurious falsehood: Palmer Bruyn & Parker v Parsons (2001) 208 CLR 388, 413 [78] (Gummow J). See also Doyle v Olby (Ironmongers) Ltd (n 34) 167 (Lord Denning MR), cited in South Australia v Johnson (1982) 42 ALR 161, 170; and Gould v Vaggelas (n 33) 242 (Wilson J); cf 223–24 (Gibbs CJ). 53 Potts v Miller (1940) 64 CLR 282, 289–90 (Starke J), 297, 299 (Dixon J); Toteff v Antonas (1952) 87 CLR 647, 650–51 (Dixon J). 54 In the statutory context, see Travel Compensation Fund v Tambree (n 13) 642–43 [45] (Gummow and Hayne JJ): ‘the answer to the question of causation will require examination of the purpose of a particular cause of action, or the nature and scope of the defendant’s obligation in the particular circumstances’. 55 HTW Valuers Pty Ltd v Astonland Pty Ltd (2004) 217 CLR 640, 667 [65] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ). 56 Gould v Vaggelas (n 33); I & L Securities Pty Ltd v HTW Valuers (Brisbane) Pty Ltd (2002) 210 CLR 109 (‘I & L Securities’). 57 Civil Law (Wrongs Act) 2002 (ACT), s 102; Law Reform (Miscellaneous Provisions) Act 1965 (NSW), s 9(1); Law Reform (Miscellaneous Provisions) Act (NT), s 16; Law Reform Act 1995 (Qld), s 10(1); Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA), s 7; Wrongs Act 1954 (Tas), s 4; Wrongs Act 1958 (Vic), s 26(1); Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA), s 4(1).

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Contributory negligence operates as an important restriction on defendant scope of liability for negligent behaviour causing physical damage or harm. Its proper role in cases of negligent misstatement is somewhat less obvious. We have seen that plaintiffs in cases of contributory negligence must have demonstrated that their reliance was reasonable. It would seem that this leaves little room for the operation of contributory negligence as a limiting factor.58 Indeed, the operation of reasonable reliance as a factor that precludes defendant liability entirely is notably severe compared to the proportional operation of contributory negligence, which does not deny but reduces defendant liability. The judicial choice of a reasonable reliance requirement over the more generalised operation of contributory negligence is accordingly significant and must reflect the perceived strength of the policy concerns, discussed earlier, favouring restrictions on defendant liability.59 Contributory negligence is expressed and sometimes analysed in terms suggestive of factual causation: the plaintiff ’s award is reduced to the extent that she has contributed to her own loss.60 However, the purpose of the legislation is apportionment and courts have emphasised that the task is a comparison of relative culpability.61 Courts compare the degree to which each party has departed from the standard of the reasonable person.62 For this reason, it is clear that (as for the primary claim) normative and policy considerations play a strong role in contributory negligence. It is also for this reason that contributory negligence will usually play no role in the intentional torts. However, even in torts such as deceit, the plaintiff ’s failure to act reasonably may have a further role to play in limiting defendant liability. This is done through the closely related requirement of mitigation, to which we now turn.

F. Mitigation: Taking Reasonable Steps to Minimise Loss The requirement that a plaintiff take reasonable steps following breach to mitigate her loss is common to all torts, including negligent misstatement and deceit. Although it is commonly called a ‘duty to mitigate’, a failure to mitigate does not give rise to an obligation to compensate the defendant but rather results in a diminution of the plaintiff ’s damages to the amount that would have been awarded

58 JEB Fasteners Ltd v Marks, Bloom & Co [1981] 3 All ER 289. However it may be that in cases where reasonable reliance has been less crucial to a finding of breach of duty, eg where reliance was intended, the limitation of contributory negligence may have more of a role to play. 59 P Cane, ‘Negligence, Economic Interests and the Assessment of Damages’ (1984) 10 Monash University Law Review 18, 39–40. 60 See above text at n 38. 61 ibid; Podrebersek v Australian Iron & Steel Pty Ltd (1985) 59 ALR 529, 532 (Gibbs CJ, Mason, Wilson, Brennan and Deane JJ). 62 Pennington v Norris (1956) 96 CLR 10, 16 (Dixon CJ, Webb, Fullagar and Kitto JJ); Podrebersek v Australian Iron & Steel Pty Ltd (n 61) 532 (Gibbs CJ, Mason, Wilson, Brennan and Deane JJ). Also eg Wrongs Act 1958 (Vic), s 26(1).

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had the plaintiff acted prudently.63 It is closely associated with the date of assessment for loss (discussed previously in the context of deceit): losses that fall after the plaintiff should have taken steps to lessen or avoid her loss may be reduced or excluded.64 At base, the mitigation bar reflects the policy view that it is desirable for plaintiff losses to be stemmed as soon as reasonably possible and, conversely, that it is undesirable for a plaintiff to continue to amass losses in circumstances where she has the ability to minimise or avoid further damage.65 These policy considerations apply as much in cases of deceit as for negligent misstatement, although in the case of fraud the court will be relatively generous in determining what steps in mitigation a duped plaintiff can reasonably be expected to undertake.66 In summary, this brief review highlights the repeated use by courts of core conceptual criteria in the law of negligent misstatement. Courts draw on a number of standards of objective fault and related principles to analyse the relationship between the parties and their respective responsibility for the wrong alleged and any harm suffered as a result. These standards are also relevant in assessing defendant liability in cases of deceit, albeit to a lesser extent. This is important in the context of the statutory prohibition on misleading or deceptive conduct because, as we will see below, it is frequently alleged that liability for misleading or deceptive conduct is unaffected by objective standards of fault on the part of the defendant,67 such as intention or foresight on the part of the defendant and, other than under limited statutory provisions, the plaintiff ’s failure to take reasonable care of her own interests. If true, it suggests that the statutory prohibition constitutes a true and radical break from the common law doctrines applicable to misleading statements. However, as will become apparent, these protestations not only overstate the case, they also tend to conceal the important role that common law concepts currently do and may yet play in limiting defendant liability under the statute. The analysis is also valuable in highlighting that the common law approaches to duty of care in negligent misstatement and deceit developed against a background of broader rules of contributory negligence, remoteness and mitigation. All components work together to articulate and delimit defendants’ scope of liability,

63 Ardlethan Options Ltd v Easdown (1915) 20 CLR 285, 296–97 (Isaacs J). See also Munce v Vinidex Tubemakers Pty Ltd [1974] 2 NSWLR 235, 239 (Glass JA); Karacominakis v Big Country Developments Pty Ltd [2000] NSWCA 313 (17 November 2000) [187] (Giles JA, Hadley and Stein JJA agreeing); Arnott v Choy [2010] NSWCA 259 (6 October 2010) [155] (McColl JA, Basten JA agreeing). 64 For the plaintiff to be required to have taken reasonable steps, the wrong must have occurred, and the plaintiff must know, or ought to know, the facts which give rise to the wrong: Ardlethan Options Ltd v Easdown (n 63) 296–97 (Isaacs J); Jones v Edwards (1994) 3 Tas R 350, 357 (Wright J); Mouritz v Hegedus [1999] WASCA 1061 (19 April 1999); Bak v Glenleigh Homes Pty Ltd [2006] NSWCA 10 (15 February 2006) [5], [8] (Handley JA), [62] (Hodgson JA). 65 Ardlethan Options Ltd v Easdown (n 63) 296 (Isaacs J). 66 Doyle v Olby (Ironmongers) Ltd (n 34) 167 (Lord Denning). 67 See text at n 69 and nn 78ff below.

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informed by the underlying policy reasons for the law’s prohibition. This strongly suggests that it is neither possible nor desirable to draw on isolated components of these common law doctrines for the purposes of interpreting the statutory provisions by analogy without considering their role and fit in that broader context. Likewise, it is necessary to consider closely the role and fit of any common law analogy in the light of the words and purpose of the statute. It is to this nuanced process of enquiry that we now turn.

III. Limiting Factors Under the ACL The prohibition on misleading or deceptive conduct in the ACL does not merely adopt and codify tort-based liability for misstatements. Rather, it creates a unique statutory cause of action. Although embedded in consumer protection legislation, it applies to all transactions ‘in trade or commerce’, regardless of the status of the plaintiff as consumer or trader. It can apply to protect members of the public and also commercial entities in their dealings with each other, although the approach taken to assessing whether conduct was misleading in these scenarios will differ.68 No intention to mislead or deceive is required to trigger statutory liability. A business ‘which has acted honestly and reasonably may … nevertheless be rendered liable’.69 The threshold question in assessing liability under section 18 is whether the conduct was misleading or deceptive or likely to mislead or deceive. Liability at this stage is not dependent on proof of loss or damage to any person attributable to the proscribed conduct.70 If a plaintiff does seek compensation, courts must then assess what loss or damage has arisen ‘because’ of the defendant’s conduct.71 In these, as in other respects, the statutory provisions differ markedly from their common law counterparts that address negligent misstatements. In that context, it is perhaps particularly apt that the High Court of Australia has repeatedly stated that it must be the words of the section that determine

68 Miller & Associates Insurance Broking v BMW Australia Finance (2010) 241 CLR 357 (‘Miller v BMW Australia’). 69 Puxu (n 10) 197 (Gibbs CJ). 70 Discussed further immediately below: see text at nn 80–82. 71 ACL, ss 236(1)(a), 237(1)(a), 238(1). On the predecessors of ss 236–38 (ss 82, 87 of the TPA) see Wardley Australia Ltd v Western Australia (1992) 175 CLR 514, 525 (Mason CJ, Dawson, Gaudron and McHugh JJ); Henville v Walker (n 12) 480 [61] (Gaudron J). This approach has been applied under the ACL: Maxton & Maxton Australia Pty Ltd v Port Village Accommodation Pty Ltd [2012] FMCA 143 (21 February 2012) [45]–[53] (Lindsay FM); Norcast SARL v Bradken Ltd (No 2) (2013) 302 ALR 486, 566 [326] (Gordon J); Carter v Delgrave Holdings Pty Ltd [2013] FCCA 738 (12 July 2013) [145] (Lindsay J); Caffey v Leatt-Heyter (No 3) [2013] WASC 348 (18 October 2013) [326] (Beech J).

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its application not analogy with the common law.72 Thus, in Murphy v Overton Investments Pty Ltd, the Court said:73 This Court has now said more than once that it is wrong to approach the operation of those provisions of Pt VI of the Act which deal with remedies for contravention of the Act by beginning the inquiry with an attempt to draw some analogy with any particular form of claim under the general law. No doubt analogies may be helpful, but it would be wrong to argue from the content of the general law that has developed in connection, for example, with the tort of deceit, to a conclusion about the construction or application of provisions of Pt VI of the Act. To do so distracts attention from the primary task of construing the relevant provisions of the Act.

At the same time it is difficult to start with an entirely clean slate. There is little direction provided in the legislation about how courts should proceed in making these assessments. The statute does not define key concepts such as the nature of the link between misleading or deceptive conduct and the loss suffered by the claimant or the meaning of ‘loss or damage’ for which damages or compensatory orders may be claimed. Recognising this, courts have also accepted that the common law provides ‘an accumulation of valuable insight and experience which may well be useful in applying the Act’.74 Particularly where the statutory phrases echo well-known common law concepts, it is inevitable that courts will refer to the operation of those common law principles in interpreting the statute. Additionally, courts have accepted that a defendant’s liability under the statute is limited. Given that the statutory norm spans both consumer and commercial dealings this is not at all surprising.75 It follows that notwithstanding the unique and express policy purposes of the statute, similar types of considerations relating to responsibility for creating and managing risks that inform the interpretation of common law torts may remain relevant to the statutory prohibition. In particular, factors familiar from the law of torts, relating to the status of the defendant, the relationship between the defendant and the plaintiff, and the plaintiff ’s response to the conduct in question, naturally inform the enquiry into whether there has been a breach of the statutory prohibition. These types of factors again become relevant in assessing the extent to which the plaintiff has suffered loss or damage that should be compensated or remedied. On this analysis, the conceptual devices used by the common law have

72 Marks v GIO Australia Holdings Ltd (n 5) 494, 503–04 [17] (Gaudron J), 510 [38] (McHugh, Hayne and Callinan JJ), 529 [103] (Gummow J), 549–50 [152] (Kirby J); Henville v Walker (n 12) 470 [18] (Gleeson CJ), 501–02 [130]–[131] (McHugh J); I & L Securities (n 56) 124–25 [42]–[48] (Gaudron, Gummow and Hayne JJ). 73 Murphy v Overton Investments Pty Ltd (2004) 216 CLR 388, 407 [44] (Gleeson CJ, McHugh, Gummow, Kirby, Hayne, Callinan and Heydon JJ) (citations omitted). 74 Henville v Walker (n 12) 470 [18] (Gleeson CJ). See also Marks v GIO Australia Holdings Ltd (n 5) 494, 512 [41] (McHugh, Hayne and Callinan JJ), 529 [102]–[103] (Gummow J), 542–43 [137]–[138] (Kirby J); Kenny & Good Pty Ltd v MGICA (1992) Ltd (n 7) 413, 460–61 [128]–[129] (Kirby and Callinan JJ). 75 Puxu (n 10) 196–97 (Gibbs CJ); Miller v BMW Australia (n 68).

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a useful role in guiding the courts’ inquiry, not because of some blind transfer of common law concepts, but because they assist courts in identifying and organising the various considerations that may apply to assist the court in defining the scope of the defendant’s statutory liability. The principles of the common law ‘may provide guidance, for the reason that they have had to respond to problems of the same nature as the problems that arise in the application of the Act’.76 Courts applying section 18 have most commonly drawn upon cases dealing with deceit. Yet there may be much to be learned from the cases on negligent misstatement in framing questions of liability, both in characterising conduct as misleading and in defining the loss that must be compensated.77 As we have seen, the negligent misstatement cases engage with a complex range of considerations relevant in delineating the scope of liability of a defendant in its dealings with the plaintiff. These concepts may usefully be utilised in developing a better understanding of the nature of the statutory liability, subject of course to the necessary primacy of the words of the section and the policy or purposes underlying the statute. The following sections accordingly consider, in the light of the approach taken in negligent misstatement, the comparative role played by objective faultbased standards in the statutory context as they relate to the conduct of defendants, plaintiffs and rules of remoteness, contributory fault and mitigation.

A. The Reasonable Defendant An immediate point of departure between negligent misstatement and the prohibition on misleading or deceptive conduct is that, subject to four caveats noted below, the fault of the defendant forms no part of the necessary conditions for breach of the statutory prohibition.78 The prohibition is concerned, rather, with the objective tendency of the defendant’s conduct to mislead or deceive. The defendant may engage in misleading or deceptive conduct innocently and with good justifications. The misleading conduct may be the outcome of honest and reasonable conduct.79 Indeed, it must be remembered that the prohibition can be contravened without anyone, in fact, having been misled by the conduct, as the High Court has recently emphasised.80 The statute aims to modify commercial behaviour by establishing certain norms of commercial practice, including that persons engaged in trade and commerce will not engage in misleading or deceptive conduct.81 Consistently with this aim, the ACL empowers regulators to 76 Henville v Walker (n 12) 470 [18] (Gleeson CJ). See also Travel Compensation Fund v Tambree (n 13) 645 [45] (Kirby J). 77 Henville v Walker (n 12) 470 [18] (Gleeson CJ). 78 Puxu (n 10) 197–98 (Gibbs CJ). 79 ibid. 80 Australian Competition and Consumer Commission v TPG Internet Pty Ltd (2013) 304 ALR 186, 196 [49], 198 [55] (French CJ, Crennan, Bell and Keane JJ), 202 [81] (Gageler J) (‘ACCC v TPG Internet’). See also Puxu (n 10) 198 (Gibbs CJ). 81 As the CCA, s 3 states: it aims ‘to enhance the welfare of Australians through the promotion of competition and fair trading and provision for consumer protection’.

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monitor and bring actions in cases of potential contravention of the statutory norm simpliciter, that is without proof of loss or damage having been suffered by any person as a result of its breach. If the claim is sustained, the ACL provides for the award of penalties for specific forms of misleading conduct82 and other enforcement powers designed to deter both the breaching party and others in like positions from engaging in misleading or deceptive conduct. Plaintiffs may also seek relief in respect of loss or damage suffered as a result of contravention of the statutory prohibition, but the ACL does not make caused loss a condition of defendant liability.83 Turning to limiting factors, typically, reasonable foreseeability of the plaintiff ’s reliance has no direct role to play at the point of identifying prohibited conduct under the ACL.84 We have seen that the critical question at this point is whether the defendant’s conduct was likely to mislead, not whether it did so and certainly not whether it actually caused harm to any identified person. Those latter-order questions generally only come into play at the point of remedies, particularly at the stage of determining the defendant’s liability for loss or damage suffered by a plaintiff “by” or “because of ” the defendant’s contravening behaviour. We return to the possible role of reasonable foreseeability in that context further below. The statute is not concerned with the same dangers of indeterminacy that are used to justify the adoption of stringent duty rules in cases of negligent misstatement. The prohibition is against an identified category of conduct and, in theory at least, its contravention is entirely possible notwithstanding that no one has been harmed by its breach. While the ‘common understanding of commercial people’ will be taken into account in determining whether particular conduct is misleading,85 the statutory prohibition of misleading or deceptive conduct cannot be undermined by conflicting, traditional common law conceptions of what constitutes acceptable commercial practices. Courts have recognised that the ACL gives effect to ‘matters of high public policy’86 and is to be ‘construed so as “to give the fullest relief which the fair meaning of its language will allow”’.87 Finally, a point to which we will return below, the statutory prohibition does not require that a plaintiff must have acted reasonably to protect her own interests in order to obtain relief. That is, there is no statutory equivalent of the common law conception of ‘vulnerability’. 82

See, eg, ACL, ss 29–34. ACL, s 237. See also Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304, 318 [24] (French CJ); ACCC v TPG Internet (n 80) 196 [49], 197–98 [54] (French CJ, Crennan, Bell and Keane JJ). 84 Butcher v Lachlan Elder Realty Pty Ltd (2004) 218 CLR 592, 605 [39] (Gleeson CJ, Hayne and Heydon JJ) (‘Butcher’). 85 General Newspapers Pty Ltd v Telstra Corporation (1993) 45 FCR 164, 177–78 (Davies and Einfeld JJ). Also Poseidon Ltd v Adelaide Petroleum NL (1991) 105 ALR 25, 26 (Burchett J). 86 Marks v GIO Australia Holdings Ltd (n 5) 494, 528 [99] (Gummow J), citing ICI Australia Operations Pty Ltd v Trade Practices Commission (1992) 38 FCR 248, 256 (Lockhart J). 87 Marks v GIO Australia Holdings Ltd (n 5) 494, 528 [99] (Gummow J), citing Bull v AttorneyGeneral (NSW) (1913) 17 CLR 370, 384 (Isaacs J); Devenish v Jewel Food Stores Pty Ltd (1991) 172 CLR 32, 44 (Mason CJ); Webb Distributors (Australia) Pty Ltd v Victoria (1993) 179 CLR 15, 41 (McHugh J). 83

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The conclusion must be that the identified objective, defendant-oriented restrictions on imposing a duty of care recognised in the context of negligent misstatement are not directly analogous to determining the issue of prohibited behaviour under the statute. This does not, however, mean they entirely cease to be of relevance. In assessing whether there has been conduct contravening section 18, courts must consider the entirety of the circumstances and, in particular, the nature of the relationship between plaintiff and defendant (including a hypothetical plaintiff in cases where the claim is made by a regulator). It is only by examining the features of this relationship that courts can make an assessment of the actual or likely impact of the conduct and its effect on the plaintiff or putative plaintiff. In certain instances as part of this process the defendant’s understanding of the plaintiff ’s likely reliance and the defendant’s intention to mislead do become relevant in the characterisation of conduct as misleading under the ACL. Thus, any broad statement that the defendant’s state of mind and the reasonableness of its conduct are not relevant to liability under section 18 is subject to at least four caveats. The first caveat relates to the fact that what is prohibited is misleading conduct not the supply of inaccurate information. In order to assess whether conduct is misleading, or likely to mislead, courts have to consider the extent to which the defendant’s conduct did or was likely to lead a person into error. This inquiry inevitably leads the court to consider not merely the perspective of the recipient, but also the entirety of the conduct of the defendant, and the reasonableness of the steps it took to qualify its responsibility for any information it has imparted.88 The second caveat is that the defendant’s state of mind may be relevant in assessing whether statements of opinion or statements as to the future are misleading.89 Moreover, as a result of section 4, a representation with respect to a future matter will be taken to be misleading or deceptive unless the representor leads evidence that he or she had reasonable grounds for making the representation.90 The third caveat arises in assessing when silence is misleading.91 A defendant who fails to reveal critical information when it would be reasonable for the 88

See further the discussion of Butcher (n 84). See also the role of the defendant’s grounds for a statement as to the future in establishing misleading conduct under the ACL, s 4, discussed in Bennett v Elysium Noosa Pty Ltd (in Liq) (2012) 202 FCR 72, 124 [181] (Reeves J); J Paterson, A Robertson and A Duke, Principles of Contract Law, 4th edn (Sydney, Thomson Reuters, 2012) 651–58; A Duke, ‘Representations as to the Future Under the Proposed Australian Consumer Law’ (2009) 33 Melbourne University Law Review 454, 461–63. For contrasting views about the interpretation of the previous provisions (TPA, s 51A(2)) and the onus of proof, see Ting v Blanche (1993) 118 ALR 543, 552 (Hill J); McGrath v Australian Natural Products Pty Ltd (2008) 165 FCR 230, 242 [44] (Emmett J), 283 [192] (Allsop J). 90 ACL, s 4(2). For discussion, see Futuretronics v Gadzhis [1992] 2 VR 217, 240 (Ormiston J); North East Equity Pty Ltd v Proud Nominees Pty Ltd (2010) 269 ALR 262, 269 [33] (Sundberg, Siopis and Greenwood JJ); Paterson, Robertson and Duke (n 89) 652. 91 Estoppel is also a case in point: Lord Wilberforce in Moorgate Mercantile Co Ltd v Twitchings [1977] AC 890, 903 expressly adopts a test of reasonable reliance as to whether silence infringed a ‘duty to speak’: ‘the question [is] whether, having regard to the situation in which the relevant transaction occurred, as known to both parties, a reasonable man in the position of the “acquirer” of the property, would expect the “owner” acting honestly and responsibly, if he claimed any title in the property, to take steps to make that claim known to, and discoverable by, the “acquirer” and whether, in the face of an omission to do so, the “acquirer” could reasonably assume that no such title was claimed.’ 89

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plaintiff to expect him to do so will have engaged in misleading conduct.92 This part of the inquiry would appear to focus on the plaintiff. Yet it is impossible to consider whether there is a reasonable expectation of disclosure on the part of the plaintiff without considering its relationship with the defendant. In addition, some courts have interpreted the statute to require the defendant’s silence to be deliberate before there can be liability for misleading or deceptive conduct.93 This possible limitation has been suggested to arise from the definition of conduct in the ACL.94 A requirement of deliberateness as an element of liability for misleading conduct will effectively operate as a requirement for the defendant to have knowledge of the plaintiff ’s reasonable expectation of disclosure. It is only in the face of this knowledge that the defendant’s failure to disclose can be deliberate. Here we see something very similar to notions used in assessing common law negligent misstatement, of reasonable reliance and knowledge of reliance. The fourth caveat relates to the role of defendant intention in determining whether conduct was ‘likely to mislead or deceive’. We have seen that the defendant’s intention to induce reliance plays an important role in deceit and has a somewhat similar role in negligent misstatement.95 In essence, the presence of intention allows courts to take a more generous approach to defendant liability. There are some signs that it has been used to cognate effect in relation to the statutory prohibition.96 Thus, although it stressed that deception was not required under the ACL, the High Court in ACCC v TPG Internet noted that deliberate stratagems to induce reliance by focusing on some facts and omitting (or underplaying) others are more likely to be found to have induced reliance and hence be found to be misleading or deceptive.97 Intention is not a criterion of liability, but it is relevant to establishing breach of the statutory norm. That this distinction continues to have normative force under the ACL is supported by the fact that the new apportionment provisions of section 138B of the Competition and Consumer Act 2010 (Cth) (CCA) (which we consider further below) only apply to reduce a defendant’s scope of liability where the defendant did not intentionally or fraudulently cause the damage.

92

See, eg, Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (1988) 39 FCR 546, 557 (Lockhart J). See, eg, Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (1986) 12 FCR 477, 489 (Bowen CJ); Noor Al Houda Islamic College Pty Ltd v Bankstown Airport Ltd (2005) 215 ALR 625, 656–57 [187]–[190] (Hoeben J). Cf CCP Australian Airships Ltd v Primus Telecommunications Pty Ltd (2005) ASAL ¶55–139, 60 005 [34] (Nettle JA, Batt and Vincent JJA agreeing). 94 ACL, s 2(2). For this view under the previous provisions (TPA, s 4(2)), see Rhone-Poulenc Agrochimie SA v UIM Chemical Services Pty Ltd (n 93) 489 (Bowen CJ). For further discussion, see Paterson, Robertson and Duke (n 89) 649–51. 95 See text at n 32 above. 96 Courts have also emphasised that inferences of reliance drawn in this manner may be rebutted by the circumstances of the transaction: Campbell v Backoffice Investments Pty Ltd (n 83) 351 [143] (Gummow, Hayne, Heydon and Kiefel JJ); De Bortoli Wines Pty Ltd v HIH Insurance Ltd (in liq) (n 35) [67], [91]–[94] (Jacobson, Siopis and Nicholas JJ); Razdan v Westpac Banking Corporation [2014] NSWCA 126 (14 April 2014) [15]–[18] (McColl JA). 97 ACCC v TPG Internet (n 80) 198 [55]–[57] (French CJ, Crennan, Bell and Keane JJ). 93

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In summary then, although the circumstances of the defendant, its state of mind, or its knowledge of the plaintiff ’s situation are not directly relevant to characterising conduct as misleading under the ACL, these notions or a variation of them do have a role in certain types of case. Here the courts’ analysis might be made more transparent by recognising the common law parallels and indeed might benefit from the comparison.

B. The Reasonable Plaintiff When we turn to consider the position of the plaintiff, the picture changes considerably. An objective analysis of plaintiff behaviour is inherent in the statutory prohibition. This is because the statutory norm prohibits conduct that is ‘misleading or deceptive, or likely to mislead or deceive’. Given the disjunctive phrase, which we have seen indicates that it is unnecessary to show that any person was actually misled or deceived, the statutory test necessarily requires a court to consider the objective impact of the impugned conduct, not its effect on the subjective state of mind of a particular plaintiff.98 In addressing this question, courts must consider what would be a reasonable response by a (hypothetical) plaintiff to the impugned conduct by the defendant. Where the object of the conduct is an identified individual, courts consider the response of a reasonable person with the characteristics of that individual.99 Where the conduct is directed towards a class of persons, or the public at large, courts consider what a ‘representative member’ of that class would make of the conduct and whether that representative person or member of a class would tend to act in reliance on the conduct.100 In both scenarios ‘there must be a sufficient causal link between the conduct and error on the part of persons exposed to it’.101 In practice, this test functions as a weak requirement of reasonable reliance, excluding cases of unreasonable consumer reliance from the ambit of what constitutes proscribed conduct. While the protection of the legislation is not limited to the careful or the astute,102 even here reasonable care on the part of the recipient is expected.103 In the words of Gibbs CJ in Puxu:104 It seems clear enough that consideration must be given to the class of consumers likely to be affected by the conduct. Although it is true, as has often been said, that ordinarily a class of consumers may include the inexperienced as well as the experienced, and the

98

Puxu (n 10) 198 (Gibbs CJ). Butcher (n 84) 604 [36]–[37] (Gleeson CJ, Hayne and Heydon JJ). 100 Campomar Sociedad Limitada v Nike International Limited (2000) 202 CLR 45, 85 [103] (the Court) (‘Campomar’). See also Puxu (n 10) 199 (Gibbs CJ); Butcher (n 84) 604 [36] (Gleeson CJ, Hayne and Heydon JJ); Campbell v Backoffice Investments Pty Ltd (n 83) 319 [35] (French CJ). 101 ACCC v TPG Internet (n 80) 194 [39] (French CJ, Crennan, Bell and Keane JJ). See also Butcher (n 84) [37]. 102 Henville v Walker (n 12) 468 [13] (Gleeson CJ). 103 Campomar (n 100) 85 [102], citing Puxu (n 10) 199 (Gibbs CJ). 104 Puxu (n 10) 199 (Gibbs CJ). See also Miller v BMW Australia (n 68) 371 [22] (French CJ and Kiefel J). 99

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gullible as well as the astute, the section must in my opinion be regarded as contemplating the effect of the conduct on reasonable members of the class. The heavy burdens which the section creates cannot have been intended to be imposed for the benefit of persons who fail to take reasonable care of their own interests.

The similarity between excluding cases where the plaintiff failed to take reasonable care and the tort concept of reasonable reliance is even more apparent when courts are considering conduct directed at an individual. It is clear that the High Court is alive to the context and that in assessing the standard of reasonable care, and indeed background knowledge, expected of recipients of information, both the forum of the statement and the intended audience are of crucial importance. For example, when that individual is in business, it is quite clear that courts have certain expectations of self-responsibility, so that any reliance on the impugned statement of the defendant must be reasonable. A good example of the relevant mode of judicial reasoning is found in Butcher v Lachlan Elder Realty Pty Ltd.105 The case involved a claim by a purchaser of property against a real estate agent. The purchaser argued that the agent had engaged in misleading conduct by including an inaccurate survey diagram in the brochure it produced to market the property. The brochure included the following disclaimer: ‘All information contained herein is gathered from sources we believe to be reliable. However, we cannot guarantee it’s [sic] accuracy and interested parties should rely on their own enquiries’. In the High Court, the majority (Gleeson CJ, Hayne and Heydon JJ) held that the conduct was not misleading.106 In reaching this conclusion the majority held that it was necessary to consider the nature of the parties, the character of the transaction contemplated and what each party knew about the other as a result of the dealings, in order to determine what effect the conduct would have.107 The majority characterised the purchasers as ‘intelligent, shrewd and self-reliant’ business people who could be assumed to respond to the representation in question in a reasonable manner.108 The real estate agent was characterised as a business with a small staff that did not hold itself out as possessing the means of independently verifying title details of property.109 Given the nature of the parties, the nature of the transaction and the presence of the disclaimer, the majority concluded that the conduct was not misleading or deceptive—the disclaimer made it clear that the real estate agent was not representing that the diagram in question was accurate.110 This sensitivity to context on the part of the court can produce very different results where the circumstances change only slightly. ACCC v TPG Internet111 involved a multimedia advertisement campaign conducted by TPG using TV,

105 106 107 108 109 110 111

Butcher (n 84). See also Miller v BMW Australia (n 68). Butcher (n 84) 605 [40] (Gleeson CJ, Hayne and Heydon JJ). ibid 604–05 [37]. ibid 606 [41]. ibid 606 [42]. ibid 605 [40], 609 [51], 615–16 [75]. ACCC v TPG Internet (n 80).

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radio, newspapers and websites. In its headline offer, it offered ‘Unlimited ADSL2+’, an internet broadband service, to consumers for $29.99 per month. In fact the offer was qualified: ADSL2+ was available only when bundled with TPG’s home phone service for an additional $30 per month (with a minimum six-month commitment) and consumers were required to pay an additional setup fee plus a deposit for telephone charges. These charges were disclosed in fine print under the headline offer. The Federal Court accepted the submissions of the Australian Competition and Consumer Commission (ACCC) that the advertisements were misleading or deceptive due to the disparity between the prominent headline offer of $29.99 and the actual offer terms. This finding was set aside on appeal in the Full Court of the Federal Court but reinstated in the High Court. The High Court accepted the reasoning of the trial judge to the effect that the advertisements had a dominant message, namely: ‘Unlimited ADSL2+ for $29.99 per month’. This would, for the ordinary consumer, create an impression that the entire cost of the service was $29.99 per month. Qualifications to this cost were not given sufficient prominence to counter the effect of the headline claim.112 The failure of consumers to pay attention to the qualifying words could not be equated with a lack of care on their behalf. The High Court explained that:113 [T]he advertisements were an unbidden intrusion on the consciousness of the target audience. The intrusion will not always be welcome. The very function of the advertisements was to arrest the attention of the target audience. But while the attention of the audience might have been arrested, it cannot have been expected to pay close attention to the advertisement … That being so, the attention given to the advertisement by an ordinary and reasonable person may well be ‘perfunctory’, without being equated with a failure on the part of the members of the target audience to take reasonable care of their own interests.

It was not sufficient to contend that many consumers may know that ADSL2+ services are often offered as part of a ‘bundle’. This knowledge would not ‘defuse’ the advertisements’ tendency to mislead in circumstances where the target audience was left with only the ‘dominant message’ at the end of the advertisements.114 Rather, consumers were likely to be misled by TPG’s advertisements because the advertisements had selected some words for emphasis and failed to neutralise the effect of this: instead, it ‘relegated the balance to relative obscurity’.115 In this regard, the High Court affirmed the proposition that ‘where a representation is made in terms apt to create a particular mental impression in the representee, and is intended to do so, it may properly be inferred that it has had that effect’.116

112 113 114 115 116

ibid 198 [57] (French CJ, Crennan, Bell and Keane JJ). ibid 196 [47]. ibid 197 [53]. ibid 197 [51]. ibid 198 [55].

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C. Remoteness and Foreseeability of Harm The limiting role of objective standards of fault has arguably also emerged in assessing the remedy available to plaintiffs who have established misleading conduct and are seeking a response to loss suffered by them. Courts have repeatedly stressed that the language of the Act does not admit of restrictions on liability arising from carelessness or fault on the part of the plaintiff that is not itself wrongful under the ACL.117 Thus, in I & L Securities, Gaudron, Gummow and Hayne JJ stated:118 it would … be anomalous if s 87 were to be read in such a way as would permit the claimant’s carelessness (not in contravention of the Act) to be taken into account to reduce the amount of the loss or damage caused by the contravener’s conduct …

So too it has been said that:119 There is nothing in s 82, in other provisions of the Act or in the policy of the Act to suggest that a plaintiff ’s right to relief for loss of which the contravening conduct was a cause depends in any way on him or her having taken reasonable care for his or her own interests.

But such blanket assertions must be qualified to the extent that they would deny the roles we have previously seen played by the concept of reasonable care or its absence, or, more generally, reasonable reliance in determining contravention of section 18. These statements arguably also overstate the case in denying any role under the statute to common law concepts such as remoteness, contributory negligence and mitigation, in which considerations of the reasonableness of the plaintiff ’s behaviour commonly play a leading part. As we will see, in this context there has been a shift from the paradigm of apparently strict liability under the statute to one where lessons drawn from negligent misstatement are increasingly apposite. The statutory remedies provided under the ACL are available where a person has suffered loss ‘because of ’ conduct prohibited by the ACL,120 and ‘by’ conduct under the predecessor legislation the TPA.121 These words have been understood as expressing a requirement of causation.122 It is notable that there is no language of remoteness employed on the face of the relevant provisions. In the light of that omission, and consistently with the protective aims of the statute, it would be entirely rational, albeit harsh, for the statute to take the position that, in order to 117

See, eg, Henville v Walker (n 12) 468 [13] (Gleeson CJ). I & L Securities (n 56) 129 [60] (emphasis in original). 119 Havyn Pty Ltd v Webster (n 12) 60 075 [116] (Santow JA, Tobias and Brownie JJA agreeing), citing Henville v Walker (n 12) 468 [13] (Gleeson CJ): ‘The purpose of the legislation is not restricted to the protection of the careful or the astute’. See also I & L Securities (n 56) 121–22 [33] (Gleeson CJ), 126–30 [50]–[62] (Gaudron, Gummow and Hayne JJ), 138 [91]–[92] (McHugh J), 178 [217] (Callinan J). 120 ACL, ss 236(1)(a), 237(1)(a). 121 TPA, ss 82, 87. 122 See, eg, Wardley Australia Ltd v Western Australia (n 71) 525 (Mason CJ, Dawson, Gaudron and McHugh JJ); Henville v Walker (n 12) 489 [95] (McHugh J). 118

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promote high standards of conduct by repeat traders, and to protect gullible and irrational consumers, the plaintiff should be entitled to be compensated for all loss caused as a matter of fact by the defendant’s misleading or deceptive conduct.123 Consistently with that position, courts have recognised that there is nothing in the words of the statutory prohibition and associated remedies to suggest that a defendant’s liability is subject to the remoteness considerations that might apply under cognate general law areas.124 In Henville v Walker, Gleeson CJ noted that the ‘only express guidance’ under the Act with respect to assessment of damages is the concept of causation expressed by the word ‘by’ (or now ‘because of ’).125 ‘The task is to select a measure of damages which conforms to the remedial purpose of the statute and to the justice and equity of the case’.126 However, this recognition has not led to wholesale rejection of the applicability of remoteness considerations under the statute. This is because courts have also taken the view that the language of causation employed by the ACL does not relate solely to the purely factual question of whether the defendant’s breach of the statutory norm as a matter of history led to the loss that in fact occurred. It additionally encompasses the quite separate question of whether a defendant should be held responsible for that outcome, a matter that raises normative questions and concerns regarding the appropriate limitations on defendants’ scope of liability under the legislation.127 The language of ‘common law practical or common-sense’ causation has commonly been deployed by Australian courts to aggregate these enquiries into both the factual and normative conditions for liability.128 This can lead to serious confusion about the conditions for and limits on defendant liability.129 In particular, in the context of the prohibition on misleading or deceptive conduct, courts have frequently been concerned that to apply the usual ‘a factor’130 test of factual causation will leave defendants in the position of insurers of plaintiff losses.131 To the extent that the language of ‘causation’ is being used to cover two quite separate issues (factual causation and normative or policy-based conditions for legal responsibility), there is a danger of losing sight of the fact that factual causation is but one part of a much greater liability enquiry. 123

See, eg, Henville v Walker (n 12) 506 [144] (McHugh J). Marks v GIO Australia Holdings Ltd (n 5) 509 [34] (McHugh, Hayne and Callinan JJ). 125 Henville v Walker (n 12) 470 [18] (Gleeson CJ). 126 ibid. 127 ibid 489–91 [96]–[98], 504 [136] (McHugh J, with whom Gummow J agreed); I & L Securities (n 56) 119 [26] (Gleeson J), cited in Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (2005) 221 CLR 568, 598 [100]; Travel Compensation Fund v Tambree (n 13) 639 [30] (Gleeson CJ), 643 [46]–[47] (Gummow and Hayne JJ), 654 [81] (Callinan J). 128 Wardley Australia Ltd v Western Australia (n 71) 525 (Mason CJ, Dawson, Gaudron and McHugh JJ); Henville v Walker (n 12) 489 [95], 493 [105], 504 [138] (McHugh J). 129 The two-stage inquiry required under Australian Civil Liability Acts addresses this concern by requiring courts to consider both factual causation and scope of liability questions when assessing causation: Civil Law (Wrongs) Act 2002 (ACT), s 45(1); Civil Liability Act 2002 (NSW), s 5D(1); Civil Liability Act 2003 (Qld), s 11(1); Civil Liability Act 1936 (SA), s 34(1); Civil Liability Act 2002 (Tas), s 13(1); Wrongs Act 1958 (Vic), s 51(1); Civil Liability Act 2002 (WA), s 5C(1). 130 I & L Securities (n 56) 122 [31]–[33] (Gleeson CJ); 128 [57] (Gaudron, Gummow and Hayne JJ). 131 Hay Property Consultants Pty Ltd v Victorian Securities Corporation Limited [2010] VSCA 247 (22 September 2010) [86]–[90] (Neave JA) (‘Hay Property’). 124

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One positive outcome of the widespread use of the language of ‘legal’ or ‘common-sense’ causation in the case law on misleading conduct is that it enables courts to take a similarly broad approach to the language of causation used under the Act.132 Insofar as courts recognise that ‘common sense’ causation is an inquiry into scope of liability, they have opened the door to consideration of limiting concepts such as remoteness. In the words of Gleeson CJ in I & L Securities:133 The misrepresentation will rarely be the sole cause of the loss. In statements of principle concerning the common law of contract or tort, additional factors which affect loss or damage are often discussed under the rubrics of remoteness, mitigation, or contributory negligence. Here we are concerned, not with common law principles, but with statutory rights and liabilities. However, the same problems arise, and must be dealt with in conformity with the statute. The relationship between conduct of a person that is in contravention of the statute, and loss or damage suffered, expressed in the word ‘by’, is one of legal responsibility. Such responsibility is vindicated by an award of damages. When a court assesses an amount of loss or damage for the purpose of making an order under s 82, it is not merely engaged in the factual, or historical, exercise of explaining, and calculating the financial consequences of, a sequence of events, of which the contravention forms part. It is attributing legal responsibility; blame. This is not done in a conceptual vacuum. It is done in order to give effect to a statute with a discernible purpose; and that purpose provides a guide as to the requirements of justice and equity in the case. Those requirements are not determined by a visceral response on the part of the judge assessing damages, but by the judge’s concept of principle and of the statutory purpose.

What remoteness rules have been identified as applicable under the Act? As Gleeson CJ makes clear, the rules limiting liability under the statute must (as at common law) be informed by the purpose of the law’s prohibition.134 The statute clearly aims strongly to deter certain forms of commercial conduct and in so doing, promote fair trading and consumer protection.135 This combination of aims and the direct prohibition on deceitful conduct makes deceit an apt source of analogical reasoning. We saw previously that in deceit, the law seeks to draw boundaries between ‘direct’ and ‘indirect’ losses, or losses intrinsic and external to assets acquired in reliance on the defendant’s misrepresentation.136 It also recognises a mitigation requirement, itself closely linked to the concept of direct and indirect losses. Thus where a business purchased as a result of the defendant’s fraud has suffered losses as a result of the gross negligence of the plaintiff in continuing trading after she should have ceased, a line may be drawn under those

132 Here, indeed, we may see the influence of civil liability legislation in refining the courts’ approach to causation under the ACL so as explicitly to deal with both aspects of the causation puzzle. 133 I & L Securities (n 56) 119 [25]–[26] (Gleeson CJ). 134 ibid 119 [26], 121 [33] (Gleeson CJ). See also Allianz Australia Insurance Ltd v GSF Australia Pty Ltd (n 127) 597 [99] (Gummow, Hayne and Heydon JJ); Travel Compensation Fund v Tambree (n 13) 643–44 [49] (Gummow and Hayne JJ); Henville v Walker (n 12) 489 [96] (McHugh J). 135 CCA, s 2; Henville v Walker (n 12) 489 [96], 503 [135] (McHugh J). 136 See text at n 53 and n 55 above.

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losses which must be borne by the plaintiff.137 Whether viewed as ‘external’ losses or a failure to mitigate, the defendant is not held responsible for those losses, notwithstanding they were undoubtedly caused as a matter of historical fact by her breach. Much the same sorts of limiting factors have been identified as being relevant to limiting defendant liability under the statute for misleading or deceptive conduct. In HTW Valuers v Astonlond138 (‘HTW Valuers’) the plaintiff was considering purchasing a small shopping arcade, near which a new shopping centre was being constructed. The plaintiff sought advice from the defendant about retail rental levels in the area. On the basis of that advice the plaintiff entered into a contract to purchase the shopping arcade. The net rent collected from the property fell dramatically over the next three-year period. The trial judge found that the defendant had engaged in misleading conduct contrary to the legislation by failing to qualify its advice by reference to the uncertain effect of the imminent opening of the new shopping centre. The High Court affirmed that the correct award of damages should be reached by deducting the ‘true’ value of the arcade at the date of acquisition from the purchase price. The losses to the plaintiff brought about by the fact that a rival shopping centre opened after the purchase date were deemed to be losses intrinsic to the asset originally purchased, and therefore recoverable. The Court distinguished this from situations where aspects of the total loss are brought about by events that are ‘independent, extrinsic, supervening or accidental’139— for example by ‘unexpected competition’.140 In HTW Valuers, the subsequent events which exacerbated the plaintiff ’s loss arose from ‘expected competition’141 and ‘“the nature” of the Plaza and its commercial and geographical environment; they were not events which arose from “sources supervening upon or extraneous to the fraudulent inducement”’.142 In I & L Securities, Gleeson CJ gave as instances where defendant liability might properly be reduced:143 [A] case in which there had been grossly unreasonable conduct on the part of a lender in realising a security; conduct that in a common law context may be regarded as a supervening cause of part of the ultimate loss … [an] act of a third party, or the influence of [an] external event or circumstance … that contributed to the financial outcome of the loan transaction.

On this analysis, the purpose of the statute supports the view that the objective failure of a plaintiff to take care to protect her own interests may be relevant here, just as it was when characterising conduct as misleading or deceptive.144 137

See text at n 56 above. HTW Valuers (n 55). ibid 659 [40] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ), quoting Potts v Miller (n 53) 298 (Dixon J). 140 HTW Valuers (n 55) 660 [42]. 141 ibid. 142 ibid 660 [43] (Gleeson CJ, McHugh, Gummow, Kirby and Heydon JJ). 143 I & L Securities (n 56) 119–20 [27] (Gleeson CJ). 144 Henville v Walker (n 12) 474 [36]. 138 139

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However, prior to the introduction of apportionment provisions to the statute, the circumstances in which a reasonableness requirement could operate to diminish defendant liability were restricted. This is because in I & L Securities the High Court held that there was nothing in the Act to permit apportionment of liability in cases where the damage was an ‘indivisible’ consequence of the defendant’s breach.145 In that case, the plaintiff financier relied on the defendant’s misleading valuation of property in making a loan, however failed to take reasonable steps to assess independently the borrower’s capacity to repay. The defendant’s plea that the plaintiff ’s concurrent role in bringing about its own loss should operate in diminution of the defendant’s total liability failed.146 The Court noted that in some comparatively rare instances (such as those suggested by Gleeson CJ)147 it would be possible and appropriate to divide up the loss suffered and attribute part to severable acts of the plaintiff or third parties. But a person who contravened the Act was otherwise liable for all of the indivisible loss of another that was attributable to the contravention. The Court could not apportion indivisible loss or damage suffered by the plaintiff in accordance with the parties’ culpability.148 By contrast, a good example of a case where loss was divisible is Hay Property Consultants Pty Ltd v Victorian Securities Corporation Limited.149 In that case, as in I & L Securities, the defendant provided a negligent valuation on which a financier relied in making a loan. When the borrower defaulted, the lender suffered a loss. However, in Hay Property, the loss was exacerbated by acts of vandalism to the property by unknown third parties, which severely diminished the value of the property before sale. Neave JA (with whom the other justices agreed) considered that the Act did not aim to make persons in the position of the defendant the insurer of all loss that flowed from breach of the statutory prohibition.150 Nor did the purpose and policy of the TPA require that a negligent valuer be held liable for loss caused by the criminal acts of third parties unrelated to the contravening conduct, unrelated in the sense that it did not increase the risk of the sort of loss that in fact occurred.151 The criminal acts of the third parties in her Honour’s view ‘[broke] the chain of causation’ and gave rise to a distinct and severable amount of loss that should be excluded from the award.152 Notably, in coming to this conclusion, Neave JA expressly drew on the analogous position taken under the law of negligence.153

145 I & L Securities (n 56) 117–18 [20] (Gleeson CJ), 128 [57] (Gaudron, Gummow and Hayne JJ), 138 [92], 141 [102] (McHugh J). 146 See also Henville v Walker (n 12) 505 [140] (McHugh J), 510 [166]–[167] (Hayne J). 147 I & L Securities (n 56) 119–120 [27] (Gleeson CJ). 148 ibid 117 [20], 121–22 [33] (Gleeson CJ), 126 [50], [60]–[62] (Gaudron, Gummow & Hayne JJ), 137–38 [89]–[93], 141 [102] (McHugh J), 177–78 [216]–[217] (Callinan J). 149 Hay Property (n 131). 150 ibid [90]. 151 ibid [89]. 152 ibid [86], [91]. 153 ibid [92].

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In summary, courts have repeatedly recognised that remoteness rules may apply under the Act consistently with its purpose, including considerations based on the reasonable conduct of the defendant. Unfortunately, this reasoning is often obscured by the unhelpful merging of the cause-in-fact enquiry with the separate question of relevant normative and policy considerations that work to restrict liability. Language such as ‘legal’ or ‘common-sense’ causation, intervening acts that ‘break the chain of causation’ and so on tend to suggest that there is some scientific principle at work, determining which fact or matter among others are relevant causes of the loss that has occurred. In truth, however, here, as at common law, the remoteness principles are deeply informed by the reasons for the law’s prohibition of the defendant’s behaviour. These reasons are primarily founded in the policy of the Act and value judgements about the proper scope of defendant liability in the light of that legislative purpose.154 None of it is straightforward and all requires an exercise of active judgement. Other High Court cases have also emphasised the importance of identifying the purpose of applicable legislation (other than and in addition to the ACL) to place proper limits on defendant liability. A good example is Travel Compensation Fund v Tambree.155 The defendants had provided misleading reports of the financial position of a third-party travel agency to the plaintiff, Travel Compensation Fund. In reliance on these reports, the Fund had allowed the third party to continue to participate in the Fund, which was a condition of holding a travel agency licence. At the subsequent request of the agency’s director, the Travel Compensation Fund terminated her business’s participation in the Fund, with the result that she lost the agency licence and should have ceased trading. However, she unlawfully continued in business, amassing further liabilities to customers for which the Fund became liable. The defendants argued that they could not be held liable for those additional losses suffered: the continued unlawful trading of the third-party business constituted, it was claimed, a ‘break’ in the chain of causation. The High Court disagreed, noting that this sort of unlawful activity was the very kind of risk against which the Travel Compensation Fund had sought assurance when it requested and received account and audit advice. Critical in determining that the loss was not too remote was the purpose of the statutory regime pursuant to which the Fund was established. In the words of Gleeson CJ:156 The whole purpose of the scheme is to protect the public against loss resulting from dealing with defaulting agents. Default commonly results from financial failure, and failure to account by an agent may well involve some form of illegality. When the appellant called for audited financial statements, the kind of loss to the public, and the kind of loss to itself, against which it sought protection was loss that would always involve an agent’s failure to account.

154 155 156

Travel Compensation Fund v Tambree (n 13). ibid (n 13) 643 [45] (Gummow and Hayne JJ), 646–48, 650–52 [57]–[63], [66]–[75] (Kirby J). ibid 638–39 [27].

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Gleeson CJ, with whom Gummow and Hayne JJ and Callinan J agreed, concluded that the unlawful conduct of the travel agent did not fall outside the ‘scope of risk’ against which the Fund had sought to protect itself.157 In this respect, it is interesting that the reasoning of Gummow and Hayne JJ in that case emphasised that, subsequent to the contravening conduct, the plaintiff had acted reasonably in terminating the failing business’s participation in the scheme, as had the Department of Fair Trading in shutting down the business once the fact of continued unlawful trading surfaced.158 Neither of these events, therefore, ‘broke’ the chain of causation. However, we have seen that the conclusion that some act or event ‘broke’ or did not break the chain of causation is a normative or policy-based one, not a conclusion of historical fact.159 In all these cases, it is undeniable that, as a matter of historical fact, the defendant’s breach was a factual cause of all the loss that occurred. In that context, the conclusion that the chain of causation has or has not been broken rests on normative concepts of reasonableness familiar from the remoteness (and mitigation)160 rules relating to deceit and negligent misstatement. These normative concepts are quite independent of the question of factual causation and are not explicit on the face of the statute. Their Honours’ emphasis on the reasonableness of the plaintiff ’s conduct confirms the normative nature of the inquiry. What other support is there in the authorities for the operation of conceptions of remoteness under the ACL? In Henville v Walker, McHugh J suggested that causation under the Act incorporated the concept of remoteness, excluding responsibility for loss or damage that ‘was not reasonably foreseeable even in a general way by the contravener’.161 The incorporation of a reasonable foreseeability test would constitute a clear departure from the stricter test of ‘direct loss’ applicable in cases of deceit and suggests a direct analogy with negligent misstatement.162 This might seem to tell against the appropriateness of the criterion in the context of the statute. But it will be recalled that the criterion of reasonable foreseeability was rejected for deceit because the defendants in such cases are by definition unreasonable.163 The same cannot be said for all defendants in cases of misleading or deceptive conduct. Nor is fraud a condition of defendant liability under the Act. So it would not seem to be incoherent to limit liability for loss in cases where the defendant contravened the statute innocently or on reasonable grounds and

157 ibid 638–39 [27], 640 [34] (Gleeson CJ). See also at 641 [40]–[41] (Gummow and Hayne JJ), 652 [73]–[74] (Kirby J). 158 ibid 642 [43]. 159 See text at n 38 above. Also Kirby J in I & L Securities (n 56) 153–54 [144]. 160 See further text at n 175. 161 Henville v Walker (n 12) 504 [136] (McHugh J, with whom Gummow J agreed). McHugh J also stressed, however, that on his view remoteness does not incorporate situations where the plaintiff has not acted reasonably: at 504 [136], a point which works to ensure that relief under the statute is not limited to reasonable plaintiffs. 162 ibid 503–04 [135]–[136] (McHugh J). 163 See text at n 52 above.

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in circumstances where the plaintiff ’s loss or damage was not reasonably foreseeable. Notably, on this approach, reasonable foreseeability would remain irrelevant to the process of characterising conduct as misleading or deceptive. It would only come into play at the stage of determining the scope of the defendant’s liability for loss. This conclusion depends on it being possible and proper to disaggregate the conditions of contravention of section 18 from the considerations bearing on defendant liability for loss caused by that breach. It is arguable that it is for two main reasons. The first is because the prohibition of misleading or deceptive conduct is actionable without loss. It follows that the informing considerations for determining liability under that provision may differ from those that inform liability for loss. The second and related point is that liability for loss is contingent on proof that the loss was caused ‘by’ or ‘because of ’ the defendant’s breach and, as we have seen, this language denotes not merely factual causation, but the normative and policy-based conditions that inform the defendant’s scope of liability. Notwithstanding these considerations, the point remains a difficult one, which also arises in respect of the apportionment provisions, to which we now turn.

D. Apportioning Fault and Contributory Negligence We have seen that, prior to the enactment of apportionment provisions under the TPA and subsequently the CCA, Australian courts had fairly consistently set their face against taking the plaintiff ’s carelessness in connection or contemporaneously with the defendant’s breach into account when determining the defendant’s level of liability for loss. The relevance of the plaintiff ’s care for his or her own interests has been said to be relevant to the scope of liability only in exceptional cases.164 This was said to be because such loss was ‘indivisible’ and the TPA made no provision for apportionment.165 Less convincingly, it was further said to be ‘anomalous’ that the claimant’s carelessness (not in contravention of the Act) should be taken into account to reduce the amount of the loss or damage caused by the contravener’s conduct,166 although we have also seen that the reasonableness of the plaintiff ’s behaviour has informed that question in other contexts.167 Thus in Henville v Walker, a majority would have held that the defendant was liable for all of the losses caused by his contravention of the statute, notwithstanding the plaintiff ’s own carelessness in preparing a seriously inaccurate feasibility study on which he also relied.168 A similar result was reached in I & L Securities where the plaintiff ’s 164 Argy v Blunts and Lane Cove Real Estate Pty Ltd (1990) 26 FCR 112, 138 (Hill J); Henville v Walker (n 12) 468 [13] (Gleeson CJ), 493 [106] (McHugh J); I & L Securities (n 56) 136 [85] (McHugh J), 154 [144] (Kirby J, citing French J in Pavich v Bobra Nominees Pty Ltd (1988) ASC 55-684). 165 See, eg, I & L Securities (n 56) 141 [102], 144 [112] (McHugh J). 166 ibid 129 [60] (Gaudron, Gummow and Hayne JJ). 167 See, eg, I & L Securities (n 56) 120 [28]–[29] (Gleeson CJ), 137 [88]–[89] (McHugh J), citing Tefbao Pty Ltd v Stannic Securities Pty Ltd (1993) 118 ALR 565, 575 (Hodgson J). 168 Henville v Walker (n 12) 469 [14] (Gleeson CJ), 482 [66] (Gaudron J), 501 [129] (McHugh J), 509 [163] (Hayne J).

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failure independently to check the creditworthiness of a borrower was not taken into account to reduce the defendant’s liability for loss arising from its misleading property valuation.169 This picture has now changed with the introduction of apportionment provisions under section 137B of the CCA.170 Section 137B (based on its predecessor s 82(1B) of the TPA) relevantly states: If: (a) a person (the claimant) makes a claim under subsection 236(1) of the Australian Consumer Law in relation to economic loss, or damage to property, suffered by the claimant because of the conduct of another person; and (b) the conduct contravened section 18 of the Australian Consumer Law; and (c) the claimant suffered the loss or damage as a result: (i) partly of the claimant’s failure to take reasonable care; and (ii) partly of the conduct of the other person; and (d) the other person did not intend to cause the loss or damage and did not fraudulently cause the loss or damage; the amount of the loss or damage that the claimant may recover under subsection 236(1) of the Australian Consumer Law is to be reduced to the extent to which a court thinks just and equitable having regard to the claimant’s share in the responsibility for the loss or damage.

As yet, there has been no extended analysis of the operation of this section.171 It is similar to the contributory negligence provisions allowing courts to apportion liability in cases of negligence, the difference being that the terminology of contributory negligence is not used.172 We have noted above that a defendant may contravene the prohibition on misleading or deceptive conduct without negligence. Because of this, courts have suggested that it may be a challenging question to determine the way damages should be apportioned under the CCA.173 The assumption underpinning that sort of observation is the apparent incoherence

169 I & L Securities (n 56) 117 [20], 121–22 [33] (Gleeson CJ), 126 [50] (Gaudron, Gummow & Hayne JJ), 137–38 [89]–[93], 141 [102] (McHugh J), 177–78 [216]–[217] (Callinan J). 170 The application laws of the States and Territories do not contain a provision equivalent to s 137B of the CCA. 171 See D Wright, ‘The Rise of Section 87 Damages?’ (2006) 28 Australian Bar Review 88, considering the possibility of claiming damages under TPA, s 87 (ACL, s 237) as a way of avoiding the operation of TPA, s 82(1B) (CCA, s 137C). 172 See, eg, Valcorp Australia Pty Ltd v Angas Securities Limited [2012] FCAFC 22 (9 March 2012) [110] (Jacobson, Siopis and Nicholas JJ), where the defendant’s liability under the Act arose from his negligent valuation. It was therefore considered the approach taken in negligence could apply under the Act, accepting that there ‘may be cases when some adjustment may need to be made to the application of [that approach], where an apportionment for contributory negligence is made pursuant to [the Act]’. See also Merost Pty Ltd v CPT Custodian Pty Ltd [2014] FCA 97 (19 February 2014) [136]–[147] (North J). 173 Caffey v Leatt-Hayter (No 3) (n 71) [503] (Beech J); Valcorp Australia Pty Ltd v Angas Securities Ltd (n 171).

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in attempting to compare the parties’ culpability in determining the defendant’s scope of liability, given that the defendant’s negligence is not a condition of liability in the first place. However, as we have seen, it is arguable that the criteria for establishing breach of the statutory norm can legitimately be uncoupled from the considerations determining the defendant’s scope of liability for loss. So it may be that a defendant’s failure to take reasonable care may properly inform the application of the particular provision. More important is whether the apportionment provisions themselves reveal any guidance as to the informing criteria for the apportionment process in this context. The section identifies the claimant’s failure to take reasonable care and her share in the ‘responsibility’ for the loss or damage as the relevant factors. These are fairly broad labels that readily encompass the sorts of objective limiting criteria relevant to negligence and concepts of ‘legal causation’ familiar from both negligent misstatement and deceit. This suggests that the enquiry may be directed to matters such as the comparative fault of the parties irrespective of any tortious duty of care, including the risk taking displayed by plaintiff and defendant, judged against an objective standard of reasonable conduct and, conversely, reasonable reliance. The inquiry into the reasonableness of the plaintiff ’s reliance on the purportedly misleading conduct would therefore occur at three levels: in characterising the conduct as misleading, in considering the causal nexus between the defendant’s conduct and the plaintiff ’s response for the purposes of accessing a remedy and then in considering whether damages should be reduced on grounds of lack of care by the plaintiff. It is, moreover, possible that the provisions are sufficiently broad to encompass the concept of mitigation, which is the final issue to which we now turn.

E. Mitigation In applying the remedial provisions of the ACL concerned with addressing plaintiff loss or damage, courts have only intermittently acknowledged the valuable analytical role that can be played by concepts of mitigation drawn from the common law. In discussing the role of carelessness on the part of plaintiffs, courts have traditionally tended to focus on the irrelevance of contributory negligence and consigned consideration of ‘gross negligence’ on the part of the plaintiff to the umbrella concept of ‘legal’ or ‘common-sense’ causation.174 This has generally entailed an all or nothing approach to issues of mitigation, whereby a failure to mitigate may, if unreasonable, be taken to ‘break the chain’ of causation between the defendant’s wrongdoing and the plaintiff ’s loss.175 Nonetheless, courts have occasionally (and we would say properly) recognised that under the

174 Henville v Walker (n 12) 468 [13] (Gleeson CJ), 493 [106] (McHugh J); I & L Securities (n 56) 136 [85] (McHugh J), 153–54 [143]–[144] (Kirby J). 175 See text at n 160 above.

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remedial provisions of the consumer law, a plaintiff cannot recover damages for losses that he could reasonably have avoided.176 As we have seen,177 a defendant’s failure to mitigate his loss is relevant to determining his scope of liability under both deceit and negligent misstatement. Similar considerations should bear upon defendant liability under the statute, even prior to the introduction of the apportionment provisions. The policy considerations of reducing economic waste that inform mitigation requirements under general law apply with equal force to statutory liability. Consistently with this view, we have seen that mitigation considerations have influenced defendants’ statutory liability through the adoption of the approach taken in deceit to the usual measure of loss in cases involving acquisition of an asset.178 Following the introduction of the apportionment provisions, it is clear that whether a plaintiff took reasonable steps to mitigate her loss following breach of the statutory provision may be a relevant issue in determining the scope of defendant liability under the ACL.

IV. Conclusion It is clearly inappropriate to interpret a statutory prohibition solely by reference to analogous common law concepts; it is the words of the prohibition that must prevail. However, as this chapter demonstrates, common law concepts developed in the context of the tort of negligent misstatement can enlighten and inform difficult debates about the scope of statutory liability for misleading or deceptive conduct under the ACL, in a manner which is consistent with the language of the statute and its purpose. The chapter has traced how the common law approaches to duty of care in negligent misstatement developed against a background of overlapping standards for assessing the relationship between the parties and their relative fault, and thus for delineating the scope of both the defendant’s duty of care and remedial liability. The prohibition on misleading conduct in the ACL does not expressly include any requirement of fault or lack of care in defining liability. Nonetheless, in the context of the statutory prohibition, we see courts similarly engaged in an inquiry into the relationship between the parties and relative expectations of responsibility and care in order to determine the scope of the defendant’s liability and in assessing damages. This is appropriate given the nature of the liability issues in question and the words and purpose of the statute. The chapter has shown that, while the common law limitations on defendant liability shed considerable light on the nature of courts’ reasoning in this context, it is neither possible nor desirable to draw on isolated components of these limitations without considering their role and fit in the broader setting of the overall common law 176 177 178

Eg Henjo Investments Pty Ltd v Collins Marrickville Pty Ltd (n 92). See text at n 64 and n 66 above. See text at n 139 above.

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claim. Likewise, it is necessary to consider closely the proper extent of any common law analogy in the light of the words and purpose of the statute. The conclusion reached in this chapter is that the tort of negligent misstatement does provide a valuable source of analogical reasoning for misleading or deceptive conduct, provided that the caveats noted above are kept firmly in mind. What remains unexplored, and can only be foreshadowed here, is the potential reflexive influence of the statute on the tort. A single example will have to suffice to illustrate this important field for future enquiry. We saw previously that a key concern of negligent misstatement is not to undermine defendants’ legitimate pursuit of their commercial interests. It is arguable that what constitutes ‘legitimate’ commercial behaviour must now be influenced by the statutory norms, including those which proscribe misleading or deceptive conduct. The statute makes clear that it is not legitimate for those who engage in trade and commerce to engage in misleading or deceptive conduct to further their commercial interests, however genuinely or reasonably they may believe themselves entitled to do so. For this reason, it must be doubted that McHugh J’s obiter suggestion in Perre v Apand Pty Ltd,179 that conduct in breach of section 52 would not be ‘illegitimate’ for the purposes of negligent misstatement, is correct. Particularly in the light of the High Court of Australia’s recent emphasis on the overriding principle of coherence in private law,180 there is every reason to think that the statute should exert considerable influence over the norms of commercial conduct that underpin developing torts such as negligent misstatement. In other words, the process may also be reciprocal, with the courts’ approach to issues of misleading conduct contrary to the legislation feeding back into the cases dealing with negligent misstatement. Recognition of this can only serve to foster a more coherent and just combination of laws relating to consumer protection.

179 180

Perre v Apand Pty Ltd (n 13) 225 [116]. Miller v Miller (2011) 242 CLR 446; Equuscorp Pty Ltd v Haxton (2012) 246 CLR 498.

8 Advisor Liability: Claims for Contribution or Reimbursement Between an Advisor and the Advisee’s Contract-Partner SIRKO HARDER*

I. Introduction Persons often enter into a contract in reliance upon advice from a third party, in particular a professional advisor, on aspects of the contract. For example, banks who lend a sum of money on the security of a mortgage over certain property often rely upon advice from a professional valuer on the value of that property, and prospective purchasers of land often rely upon advice from a solicitor on the vendor’s title to the land. If the advisee’s contract-partner breaches the contract and the information provided by the advisor turns out to have been incorrect, the advisee is entitled to claim damages for breach of contract from the contractpartner. Additionally or alternatively, the advisee may wish to establish liability on the advisor’s part for the loss suffered by the advisee as a result of entering into the induced contract (reliance loss). This is particularly significant where the contract-partner is insolvent or has absconded and the advisor is insured or otherwise has ‘deep pockets’. An advisor who is liable and has paid compensation may wish to recoup all or some of that compensation from the contract-partner. By the same token, a contract-partner who has paid compensation may wish to recoup all or some of that compensation from the advisor. In Hedley Byrne & Co Ltd v Heller & Partners Ltd,1 where the advice related to the financial stability of the advisee’s contract-partner, it was laid down that * Some of the ideas expressed in this chapter have already been expressed in S Harder, ‘Claims between a Person Liable for Misrepresentation and the Representee’s Contract-Partner’ (2014) Journal of Business Law 121. The Journal has kindly permitted a republication of the relevant parts. 1 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL).

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an advisor may be liable for a negligent misstatement even in the absence of a contractual or fiduciary relationship with the advisee. This has increased the frequency of claims against professional advisors, but the categories of case in which advisors are liable in the absence of a contractual or fiduciary relationship are not entirely settled. The rule in Hedley Byrne v Heller has also increased the frequency of claims between advisors and their clients’ contract-partners, but the decisions on those claims have been inconsistent. There has been inconsistency in respect of the measure of the advisor’s liability towards the advisee and in respect of the question of whether either wrongdoer, after paying compensation to the advisee, is entitled to recoup all or some of that compensation from the other wrongdoer. This chapter considers how liability is, and should be, allocated between the contract-partner and the advisor in two categories of case. The first category (considered in Section III) concerns the situation in which the advisee is claiming a contractual debt or damages for breach of contract from the contract-partner. The second category (considered in Section IV) concerns the situation in which the advisee is claiming damages from the contract-partner in respect of a precontractual misrepresentation. It is assumed throughout that the advisor is liable to compensate the advisee’s reliance loss in contract or tort (or both).2 Two different liability regimes are considered for each category of case. One is the regime of joint and several liability (or ‘solidary liability’),3 which is dominant, for example, in England and Wales, Northern Ireland and New Zealand. The other liability regime discussed is the proportionate liability regime that exists in Australia.4 The chapter starts with a brief outline of the different ways of allocating liability between multiple debtors in general.

II. Ways of Allocating Liability Between Multiple Debtors This section gives a brief overview of the different ways in which liability may be allocated between multiple wrongdoers, and the concepts involved. The relevant concepts are joint and several liability (or ‘solidary liability’), proportionate liability, contribution, reimbursement, subrogation to a subsisting right, and

2 In Australia and New Zealand, the advisor may also be liable for misleading or deceptive conduct under statute: Competition and Consumer Act 2010 (Cth) sch 2, s 18; Fair Trading Act 1986 (NZ) s 9. 3 The term traditionally used in common law jurisdictions is ‘joint and several liability’. In Australia and some other jurisdictions, the term ‘solidary liability’ is now often used to express the same concept. 4 This chapter does not discuss the proportionate liability regimes that exist in a number of North American jurisdictions. Nor does it discuss the merits of proportionate liability in general. For a recent discussion of the latter issue, see New Zealand Law Commission, Liability of Multiple Defendants (Report No 132, 2014).

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subrogation to an extinguished right.5 There is no limit to the number of debtors that could be involved, and it is not necessary that all debtors owe the same amount of money to the creditor. However, to avoid unnecessary complexity, the following exposition will assume that there are just two debtors who owe the same amount of money to the creditor. The present interest lies particularly in the allocation of liability between two persons who, independently of each other, have committed wrongs against the same victim. In those circumstances, the first question to ask is whether the damage suffered by the victim is, by its nature, divisible or indivisible. If it is divisible, each wrongdoer will be liable only for that part of the damage that he has caused, and the concepts explained in this section have no relevance. If, on the other hand, the harm is indivisible, the question arises whether the victim is entitled to claim full compensation for the harm from either wrongdoer (subject to the rule that there can be no double recovery), or whether each wrongdoer is liable only for a fixed proportion of the harm. While the former is the case under a regime of joint and several liability, which applies to concurrent wrongdoers at common law, the latter is the rule applying under the proportionate liability regime prescribed by statute in Australia in most cases involving pure economic loss.6 Where two debtors are jointly and severally liable for the payment of a certain amount of money (for example, damages), the creditor can claim the whole sum from either of them, as long as there is no double recovery. In most circumstances, the law prevents double recovery by regarding both debtors’ obligations as discharged as soon as one of them pays the full amount to the creditor. In that case, the non-paying debtor is discharged from his obligation towards the creditor, but may face a claim for contribution or reimbursement from the paying debtor. Both contribution and reimbursement thus presuppose a valid discharge of the nonpaying debtor’s obligation towards the creditor. Common law and equity have recognised a right to contribution in a number of contexts, for example between co-sureties,7 joint contractors,8 and indemnity insurers insuring the same risk.9 Indeed, it has been said that a right to contribution 5 The names of the first three concepts mentioned are established terms. With regard to the last three concepts mentioned, this chapter adopts the terminology used by C Mitchell, P Mitchell and S Watterson, Goff & Jones, The Law of Unjust Enrichment, 8th edn (London, Sweet & Maxwell, 2011) para 19.45; C Mitchell and S Watterson, Subrogation: Law and Practice (Oxford, Oxford University Press, 2007) paras 1.05–1.07. 6 The exact circumstances in which the Australian proportionate liability statutes apply are set out further below. 7 See, eg, Mahoney v McManus (1981) 180 CLR 370; Capita Financial Group Ltd v Rothwells Ltd (1993) 30 NSWLR 619 (CA) 620–22; Hampton v Minns [2002] 1 WLR 1 (Ch) 15; Edwards v Proprius Holdings Ltd [2009] NZHC 689 [22]. 8 See, eg, Coulls v Bagot’s Executor and Trustee Co Ltd (1967) 119 CLR 460 (HCA), 480 (Barwick CJ); Muschinski v Dodds (1985) 160 CLR 583, 596 (Gibbs CJ); Lumley v Robinson [2002] EWCA Civ 94 [12]. 9 Godin v London Assurance Co (1758) 1 Burr 489; 97 ER 419; North British and Mercantile Insurance Co v London, Liverpool and Globe Insurance Co (1877) 5 Ch D 569 (CA) 583, 587; American Surety Co of New York v Wrightson (1910) 27 TLR 91 (KB) 93; Albion Insurance Co Ltd v Government Insurance Office (NSW) (1969) 121 CLR 342 (HCA); Speno Rail Maintenance Australia Pty Ltd v Metals & Minerals Insurance Pte Ltd [2009] WASCA 31, (2009) 253 ALR 364 [181].

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generally arises both at common law and in equity where one of a number of multiple debtors who are jointly and severally liable pays more than his share of the debt.10 However, the High Court of Australia has required the debtors’ liabilities to be ‘co-ordinate’,11 that is, ‘of the same nature and … extent’,12 although they may have different sources, such as contract and statute.13 Common law and equity do not recognise a right to contribution between concurrent tortfeasors.14 However, legislation in all the jurisdictions under discussion provides for a right to contribution between tortfeasors liable in respect of ‘the same damage’.15 The statutes of some jurisdictions apply also to certain wrongdoers other than tortfeasors,16 or indeed to all wrongdoers.17 Wrongdoers may be liable in respect of ‘the same damage’ for the purpose of a contribution statute even though they are not liable in the same amount.18 In the absence of an agreement to the contrary, contribution shares are equal at common law19 and, at least as a general rule, in equity.20 The contribution statutes mentioned provide that the court is to apportion the contribution shares according to each wrongdoer’s responsibility for the damage, and that the court has the power to exempt any wrongdoer from liability to make contribution and to order one wrongdoer to completely indemnify the others.21 If one wrongdoer is insolvent,

10

Albion Insurance (n 9) 342, 349–51 (Kitto J); Lumley v Robinson (n 8) [12] (Aldous LJ). Burke v LFOT Pty Ltd [2002] HCA 17, (2002) 209 CLR 282 [15]–[16]; Friend v Brooker [2009] HCA 21, (2009) 239 CLR 129 [40]; HIH Claims Support Ltd v Insurance Australia Ltd [2011] HCA 31, (2011) 244 CLR 72 [36]–[42]. 12 Burke v LFOT (n 11) [15]–[16], [38]; Friend v Brooker (n 11) [40]; HIH v Insurance Australia (n 11) [39]. 13 Friend v Brooker (n 11) [42]; HIH v Insurance Australia (n 11) [39]. 14 Merryweather v Nixan (1799) 8 Term Rep 186; 101 ER 1337; James Hardie & Co Pty Ltd v Seltsam Pty Ltd (1998) 196 CLR 53, 75; Burke v LFOT (n 11) [16]; Belan v Casey [2003] NSWSC 159, (2003) 57 NSWLR 670 [108]–[110]. 15 Civil Liability (Contribution) Act 1978 (UK) s 1(1); Civil Law (Wrongs) Act 2002 (ACT) s 21(1); Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 5(1)(c); Law Reform (Miscellaneous Provisions) Act (NT) s 12(4); Law Reform Act 1995 (Qld) s 6(c); Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 6(1); Wrongs Act 1954 (Tas) s 3(1)(c); Wrongs Act 1958 (Vic) s 23B(1); Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA) s 7(1)(c); Law Reform Act 1936 (NZ) s 17(1)(c). 16 Civil Law (Wrongs) Act 2002 (ACT) s 19; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 4(1); Wrongs Act 1954 (Tas) s 2. The wrongs to which those statutes apply are discussed by K Barnett and S Harder, Remedies in Australian Private Law (Port Melbourne, Cambridge University Press, 2014) 89. 17 Civil Liability (Contribution) Act 1978 (UK) s 6(1); Wrongs Act 1958 (Vic) s 23A(1). 18 Nationwide Building Society v Dunlop Haywards (DHL) Ltd [2009] EWHC 254 (Comm), [2010] 1 WLR 258; Bank of Ireland v Faithful & Gould Ltd [2014] EWHC 2217 (TCC), [2014] PNLR 664 [236]. 19 Lowe & Sons v Dixon & Sons (1885) 16 QBD 455 (QB) 458; Albion Insurance (n 9) 349–50 (Kitto J); BP Petroleum Development Ltd v Esso Petroleum Co Ltd 1987 SLT 345 (CSOH) 348–49. 20 Albion Insurance (n 9) 349–50 (Kitto J); Commercial and General Insurance Co Ltd v Government Insurance Office of NSW (1973) 129 CLR 374, 380; Scholefield Goodman and Sons Ltd v Zyngier [1986] AC 562 (PC) 575; Hampton v Minns (n 7); Burke v LFOT (n 11) [38] (McHugh J); Edwards v Proprius Holdings Ltd (n 7) [22]. 21 Civil Liability (Contribution) Act 1978 (UK) s 2(1); Civil Law (Wrongs) Act 2002 (ACT) s 21(2), (3)(b) and (c); Law Reform (Miscellaneous Provisions) Act 1946 (NSW) s 5(2); Law Reform (Miscellaneous Provisions) Act (NT) s 13; Law Reform Act 1995 (Qld) s 7; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 6(5)–(7); Wrongs Act 1954 (Tas) s 3(2); Wrongs Act 1958 11

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the contribution shares of the solvent wrongdoers increase proportionally both in equity22 and under statute.23 Reimbursement24 occurs where, as between the two debtors,25 one of them is supposed ultimately to bear liability, because of an agreement between the parties to that effect or, as exemplified in Section III, because of the nature and rationale of each debtor’s liability. If that debtor pays the creditor, the other debtor need not contribute anything to that payment. If the debtor whose liability is only secondary (as between the debtors) pays the creditor, that debtor can claim full reimbursement from the debtor whose liability is primary. For example, in the absence of an agreement to the contrary, a guarantor who pays the creditor can claim reimbursement from the principal debtor,26 but a principal debtor who pays the creditor has no claim against the guarantor.27 In Duncan, Fox & Co v North and South Wales Bank, Lord Selbourne said that reimbursement can be claimed whenever there is a primary and a secondary liability of two persons for one and the same debt, the debt being, as between the two, that of one of those persons only, and not equally of both, so that the other, if he should be compelled to pay it, would be entitled to reimbursement from the person by whom (as between the two) it ought to have been paid.28

It might be thought that reimbursement is exactly the same thing as an entitlement to contribution in the amount of 100 per cent. Such an understanding of reimbursement might indeed have little impact upon the outcome in some cases. For current purposes, however, it is important to recognise that contribution and reimbursement operate in different categories of case. A right to contribution exists only where it is in principle possible that each debtor bears part of the common liability, even if one debtor’s part is much larger

(Vic) s 24(2); Law Reform (Contributory Negligence and Tortfeasors’ Contribution) Act 1947 (WA) s 7(2); Law Reform Act 1936 (NZ) s 17(2). 22 See, eg, Lowe v Dixon (n 19); Mahoney v McManus (n 7) 376 (Gibbs CJ); De Sousa v Cooper (1992) 106 FLR 79 (NTSC) 81; Edwards v Proprius Holdings Ltd (n 7) [22]. 23 Fisher v CHT Ltd (No 2) [1966] 2 QB 475 (CA) 480–81; Optus Networks Pty Ltd v Leighton Contractors Pty Ltd [2002] NSWSC 327 [95]. 24 The term ‘indemnity’ is better avoided in the present context since it has a different meaning in other contexts: C Mitchell, The Law of Contribution and Reimbursement (Oxford, Oxford University Press, 2003) paras 1.15–1.17. 25 A debtor who is only secondarily liable as against the other debtor may be primarily liable as against the creditor: Berghoff Trading Ltd v Swinbrook Developments Ltd [2009] EWCA Civ 413, [2009] 2 Lloyd’s Rep 233 [25]; SJ Whittaker, ‘Suretyship’ in HG Beale (ed), Chitty on Contracts, 31st edn, vol 2 (London, Sweet & Maxwell, 2012) para 44.003. 26 Ford v Stobridge (1633) Nels 24; 21 ER 780; Anson v Anson [1953] 1 QB 636 (QB). 27 Caledonia North Sea Ltd v London Bridge Engineering Ltd 2000 SLT 1123 (CSIH) 1142. Similarly, a surety cannot claim contribution from a co-surety who undertook liability at the request of the former: Turner v Davies (1796) 2 Esp 478; 170 ER 425; Official Trustee in Bankruptcy v Citibank Savings Ltd (1995) 38 NSWLR 116 (SC). 28 Duncan, Fox & Co v North and South Wales Bank (1880) 6 App Cas 1 (HL) 11. See also Moule v Garrett (1872) LR 7 Ex 101, 104; Brook’s Wharf and Bull Wharf Ltd v Goodman Brothers [1937] 1 KB 534 (CA) 543–44; Re Downer Enterprises Ltd [1974] 1 WLR 1460 (Ch) 1468; Becton Dickinson UK Ltd v Zwebner [1989] 1 QB 208 (QB) 215–18; Electricity Supply Nominees Ltd v Thorn EMI Retail Ltd (1992) 63 P & CR 143 (CA) 148–49; Niru Battery Manufacturing Co v Milestone Trading Ltd (No 2) [2004] EWCA Civ 487, [2004] 2 All ER (Comm) 289 [68]; Berghoff Trading v Swinbrook (n 25) [24]–[26].

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than the other’s. Where this is the case, an allocation of nil and 100 per cent (which is exceptional) still remains an order of contribution. For example, where two persons have committed a tort together, the court may allocate the whole of the common liability to one of them, on the ground that that tortfeasor’s conduct was dominant and the other’s insignificant. But it is still an order of contribution and not reimbursement, since it is in principle possible (and indeed the rule) that each of joint tortfeasors bears part of the common liability. By contrast, a right to reimbursement exists where, irrespective of the precise circumstances of the individual case, the nature and rationale of each debtor’s obligation invariably render one debtor primarily (or ultimately29) liable (as between the debtors) for the whole of the common liability. That debtor can never have a claim against the other debtor, and a claim for full reimbursement invariably lies where the debtor who is secondarily liable pays the creditor. For example, in the absence of an agreement to the contrary, a guarantor can always claim reimbursement from the principal debtor, and a principal debtor never has a claim against the guarantor. A case of the second type may fall within the scope of a contribution statute if the debtors are considered liable in respect of ‘the same damage’ for the purpose of the statute. However, the share borne by the debtor who is secondarily liable must always be nil,30 and the share borne by the debtor who is primarily liable must always be 100 per cent.31 It might foster clarity if the contribution statutes were to be interpreted as applying only where it is in principle possible that each debtor bears part of the common liability. Where multiple wrongdoers are liable for the same indivisible harm, proportionate liability (in its simplest form) means that each wrongdoer is liable towards the victim for only part of the damage, reflecting the extent of that wrongdoer’s own responsibility for the damage. The share of an insolvent wrongdoer is not redistributed to the other wrongdoers, but must be borne by the plaintiff.32 Thus, the plaintiff will obtain full compensation only if she pursues all wrongdoers and all are able to pay. Where all wrongdoers are solvent33 and, in the absence of proportionate liability, the case would fall within the scope of a contribution statute, the wrongdoers’ shares under the proportionate liability regime are the same as their shares under the contribution statute, since both regimes apportion liability according to each

29 It has been said that the term ‘primary liability’ ought to be replaced by ‘ultimate liability’: Re Downer Enterprises Ltd (n 28); Becton Dickinson v Zwebner (n 28) 217. 30 See T Weir, ‘Subrogation and Indemnity’ (2012) 71 CLJ 1, 3. 31 Thames Valley Housing Association Ltd v Elegant (Guernsey Ltd [2011] EWHC 1288 (Ch) [118]. 32 Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd [2013] HCA 10, (2013) 247 CLR 613 [10] (‘Hunt & Hunt Lawyers’). 33 If one wrongdoer is insolvent, the contribution shares of the other wrongdoers will increase proportionally, whereas their liability shares under a proportionate liability regime (in its simple form) will not.

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wrongdoer’s comparative responsibility for the damage.34 Where, in the absence of proportionate liability, a right to contribution would exist in equity but not under statute, this congruence of shares will exist only if there is equitable jurisdiction to allocate shares according to comparative responsibility for the damage, as opposed to equal shares. It is not settled whether such jurisdiction exists.35 Congruence of shares cannot be achieved where, in the absence of proportionate liability, a reimbursement claim would lie. The approach under a proportionate liability regime contradicts the allocation of liability under reimbursement principles. It will be argued below that proportionate liability is inappropriate in the last category of case. There remain the two forms of subrogation. In the context of joint and several liability of two debtors, subrogation to an extinguished right occurs where, even though payment by one debtor to the creditor extinguished both debtors’ obligations towards the creditor, the debtors are treated as if the creditor’s claim against the non-paying debtor had been transferred to the paying debtor.36 This enables the paying creditor to realise securities for that claim. In the present context, subrogation to an extinguished right supplements a claim for contribution37 or reimbursement,38 and cannot occur unless such a claim exists.39 It has little relevance to the issues discussed in this chapter. Subrogation to a subsisting right occurs where payment by one debtor to the creditor did not extinguish the creditor’s claim against the other debtor and the paying debtor is entitled to enforce that subsisting claim. It thus achieves the same practical outcome as a claim for reimbursement coupled with subrogation to an extinguished right. At common law, subrogation to a subsisting right is recognised only where the victim of a wrong had taken out indemnity insurance for the loss

34 Since shares of nil and 100 per cent are possible under a contribution statute, they should also be possible under a proportionate liability statute. The opposite view is taken by B McDonald, ‘Proportionate Liability in Australia: The Devil in the Detail’ (2005) 26 Australian Bar Review 29, 36–37. 35 The jurisdiction was assumed in Jones v Mortgage Acceptance Nominees Ltd (1996) 63 FCR 418 (FCA) 422; Duke Group Ltd (in liq) v Pilmer (1998) 144 FLR 1 (SASC) 253. The jurisdiction was doubted in Bialkower v Acohs Pty Ltd (1998) 83 FCR 1 (FCAFC) 12–13, and rejected in Sky Channel Pty Ltd v Tszyu (No 2) [2000] NSWSC 1150 [7]–[13]. 36 Banque Financière de la Cité v Parc (Battersea) Ltd [1999] 1 AC 221 (HL) 236 (Lord Hoffmann). It involves a legal fiction that gives the paying debtor a new right replicating the creditor’s extinguished right: Mitchell and Watterson (n 5) chs 3, 8. 37 In Niru v Milestone Trading (n 28), it was said in obiter dicta that a right to contribution cannot be supplemented by subrogation to an extinguished right. These dicta conflict with authority and principle: Mitchell and Watterson (n 5) para 6.16. 38 ‘[I]f A and B are liable to a creditor for the same debt in such circumstances that the ultimate liability falls on A, and if B in fact pays the debt to the creditor, then B is entitled to be reimbursed by A, and likewise is entitled to take over by subrogation any securities or rights which the creditor may have against A’: Re Downer Enterprises Ltd (n 28) (Pennycuick VC). Followed in Becton Dickinson v Zwebner (n 28) 216. 39 Mitchell and Watterson (n 5) para 3.21. In Niru v Milestone Trading Ltd (No 2) (n 28) MooreBick J recognised a right to be subrogated to an extinguished claim while denying a claim for contribution or reimbursement. This discrepancy vanished when a claim for reimbursement was recognised on appeal: [2004] EWCA Civ 487, [2004] 2 All ER (Comm) 289.

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in question.40 After paying the insured, the insurer can enforce the insured’s claim against the wrongdoer.41 Legislation provides for subrogation to a subsisting right in certain analogous circumstances.42 Since subrogation to a subsisting right is not recognised in the types of case considered in this chapter, there is no reason to discuss it further.

III. The Advisee Enforces the Induced Contract This section considers the allocation of liability in cases in which the advisee seeks payment of a contractual debt or damages for breach of contract from the contract-partner. The circumstances discussed are as follows. A person who is contemplating entering into a particular contract seeks independent advice on the possibility of the contract-partner breaching the contract or on the consequences of such a breach (or both). The advisor assures the advisee that the feared breach cannot occur or would not affect the advisee. Relying on this advice, the advisee enters into the contract. It would normally have been a good bargain for the advisee, but the contract-partner then breaches the contract, causing economic loss to the advisee. The advice turns out to have been incorrect, rendering the advisor liable to compensate the advisee for the reliance loss suffered.43 The advisee pursues her contract-partner for a remedy for non-performance of the contract, rendering it irrelevant whether the contract-partner would alternatively be liable for wrongfully inducing entry into the contract.44 Since the advisor’s liability towards the advisee is one to pay money (namely damages), it is assumed that the remedy sought by the advisee from the contract-partner is also the payment of money, either damages or a sum stipulated in the contract. 40 An indemnity insurance is present where the insurer promises to compensate the insured for actual loss suffered in a particular event. By contrast, a contingency insurance, such as a life insurance, is present where the insurer promises to pay a specified sum of money in a particular event. See PJS MacDonald Eggers, ‘Insurance’ in HG Beale (ed), Chitty on Contracts, 31st edn, vol 2 (London, Sweet & Maxwell, 2012) paras 41.003–41.004. 41 Simpson & Co v Thomson (1877) 3 App Cas 279 (HL) 284, 292; Castellain v Preston (1883) 11 QBD 380 (CA) 390–91; State Government Insurance Office (Qld) v Brisbane Stevedoring Pty Ltd (1969) 123 CLR 228 (HCA) 240–41; Graham v Entec Europe Ltd [2003] EWCA Civ 1177 [37]; Insurance Commission of Western Australia v Kightly [2005] WASCA 154, (2005) 30 WAR 380 [26]; Hatzl v XL Insurance Co Ltd [2009] EWCA Civ 223, [2010] 1 WLR 470 [24]. A co-insurer that has paid contribution to the indemnifying insurer ought to be entitled to partial subrogation, but this was denied in Speno Rail Maintenance (n 9) [211]–[225]. 42 The relevant statutes in the UK are discussed by Mitchell and Watterson (n 5) paras 10.197– 10.206. 43 It is assumed that the prerequisites of the advisee’s cause of action against the advisor (such as breach by the advisor of a duty of care towards the advisee) are satisfied. 44 If the advisee pursues her contract-partner for a remedy for non-performance, the existence of an alternative claim for misrepresentation should not affect the advisor’s position: S Harder, ‘Claims between a Person Liable for Misrepresentation and the Representee’s Contract-Partner’ (2014) Journal of Business Law 121, 137–38. The opposite view was taken in Kayteal Pty Ltd v Dignan [2011] NSWSC 197, (2011) 15 BPR 29, 515 [67].

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The discussion of this category proceeds in three steps. First, I critically investigate the way in which the advisor’s liability towards the advisee is and should be measured, ignoring for the moment the possible impact of a proportionate liability regime. Secondly, I investigate the way in which liability is and should be allocated between the advisor and the contract-partner under a regime of joint and several liability. The third and final step is to examine the impact on this allocation of the proportionate liability regime that exists in Australia.

A. Measuring the Advisor’s Liability Towards the Advisee Two different measures of the advisor’s liability towards the advisee have been adopted in the cases. The first measure is the difference between the value of everything the advisee has given away under the induced contract and the value of everything she has obtained under that contract, including the value of her outstanding claim against the contract-partner. Thus, the fact that the contract-partner is contractually liable towards the advisee reduces the advisor’s liability towards the advisee (unless it is certain that nothing can be obtained from the contractpartner). The advisor must pay compensation only if, and to the extent that, the advisee’s claim against the contract-partner is valued at less than its nominal amount because, for example, the contract-partner is insolvent or has absconded (and is not insured). Essentially, the advisor is liable only for the amount (if any) that the advisee is expected to be unable to recoup from the contract-partner.45 The other measure of the advisor’s liability towards the advisee adopted in the cases is the difference between the value of everything the advisee has given away under the induced contract and the value of assets (other than the claim against the contract-partner) the advisee has obtained under that contract. By ignoring the value of the advisee’s contractual rights against the contract-partner in measuring the advisor’s liability towards the advisee, this approach yields a higher liability for the advisor than the first measure, the increase in the advisor’s liability corresponding to the value of those rights. Consider the following example. After a property has been sold for $500,000 and the purchaser paid the purchase price, it turns out that the vendor lacks title to the property. Comparable properties are available for $500,000. The purchaser is entitled to contractual damages in the amount of $500,000 from the vendor,46 but the vendor has yet to pay. Prior to the purchase, a solicitor had carelessly advised

45 It follows that performance or payment of damages by the contract-partner cannot discharge the advisor’s liability towards the advisee. Payment of damages by the advisor may or may not discharge the contract-partner’s obligation towards the advisee, to the extent of the payment. That issue will be discussed further below. 46 It is assumed that the vendor cannot rely on the rule in Bain v Fothergill (1874) LR 7 HL 158, which restricts an innocent vendor’s liability for defective title to the purchaser’s expenses in investigating the title. The rule has been abolished by legislation in the United Kingdom, New Zealand and some Australian jurisdictions.

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the purchaser that the vendor had title to the property. The purchaser demands compensation from the solicitor, who is in principle liable towards the purchaser. The amount of the solicitor’s liability is straightforward under the second measure mentioned before: it is always $500,000.47 By contrast, the amount of the solicitor’s liability under the first measure depends upon the estimated value of the purchaser’s damages claim against the vendor. If it is certain that nothing can be obtained from the vendor (because, for example, the vendor is insolvent), the solicitor will be liable in the amount of $500,000. If it is estimated that, say, $300,000 can be obtained from the vendor, the solicitor will be liable in the amount of $200,000. If it is certain that $500,000 can be obtained from the vendor, the solicitor will not be liable at all. The amount of the solicitor’s liability and the amount that it is estimated can be obtained from the vendor always add up to $500,000. The courts have not applied the same measure of the advisor’s liability in all cases. The first measure has been applied in most cases in which a lender granted a loan to a borrower in reliance on a valuer’s negligent overvaluation of the security for the loan. In those cases, the value of the lender’s outstanding claim against the borrower was taken into account in measuring the valuer’s liability towards the lender. Lord Nicholls, with whom all other Law Lords agreed, said in Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2): [I]n the case of a negligent valuation of an intended loan security, the basic comparison called for is between (a) the amount of money lent by the plaintiff, which he would still have had in the absence of the loan transaction, plus interest at a proper rate, and (b) the value of the rights acquired, namely the borrower’s covenant and the true value of the overvalued property.48

By contrast, the second measure of the advisor’s liability has tended to be applied in cases in which the advisee purchased or sold an asset. In cases in which the advisee purchased an asset, the advisor was held liable in the amount of the difference between the purchase price and the value of the asset,49 or in the amount

47 Of course, the advisee cannot accumulate recoveries by obtaining $500,000 from the advisor and another $500,000 from the contract-partner. The ways of preventing double recovery under the second measure are discussed further below. 48 Nykredit Mortgage Bank plc v Edward Erdman Group Ltd (No 2) [1997] 1 WLR 1627 (HL) 1631. See also Eagle Star Insurance Co Ltd v Gale & Power (1955) 166 EG 37 (QB) 37–38; First National Commercial Bank plc v Humberts [1995] 2 All ER 673 (CA) 678–79, 680; Howkins & Harrison (a firm) v Tyler [2001] PNLR 634 (CA) 640; Arrowhead Capital Finance Ltd (in liq) v KPMG LLP [2012] EWHC 1801 (Comm), [2012] STC 2503 [67], [78]–[79]. The value of the lender’s claim against the borrower was not deducted from the amount lent, without citation of authority, in Nationwide v Dunlop Haywards (n 18) [33]. The two measures produce the same outcome where nothing can be obtained from the borrower (because of bankruptcy etc); for this reason, a choice between the two measures was not required, and not made, in St George Bank Ltd v Quinerts Pty Ltd [2009] VSCA 245, (2009) 25 VR 666; Kayteal v Dignan (n 44) 515. 49 Eastgate Group Ltd v Lindsey Morden Group Inc [2001] EWCA Civ 1446, [2002] 1 WLR 642 [14]; Marlborough District Council v Altimarloch Joint Venture Ltd [2012] NZSC 11, [2012] 2 NZLR 726 [69]–[73] (Blanchard J), [200]–[209] (McGrath J, with whom Anderson J agreed on this issue).

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of the advisee’s wasted expenses.50 In cases in which the advisee sold an asset, the advisor was held liable in the amount of the difference between the market value of the asset and the money actually paid by the contract-partner.51 Similarly, where a car dealer’s misrepresentation induced a finance company to acquire a car from the dealer and transfer it to a hirer-purchaser who then defaulted, the car dealer was held liable in the amount of the difference between the price paid by the finance company to the car dealer and the money actually received from the hirer-purchaser.52 In none of these cases was the value of the advisee’s outstanding claim against the contract-partner deducted from the value of what the advisee had given away under the induced contract.53 The cases mentioned demonstrate that the courts have tended to take the value of the advisee’s claim against the contract-partner into account where that claim is one in debt, but not where it is a claim in damages.54 But not all cases fit into that pattern. Moreover, there is no reason why the measure of the advisor’s liability ought to differ according to the type of claim made by the advisee against her contract-partner, or the type of assets given away by the advisee, or the type of contract. It ought to be the same in all cases. Since the measure of the advisor’s liability affects the ultimate allocation of liability, at least on a practical level, it is now appropriate to consider which measure is preferable on principle. The practical difference between the two measures is that if one takes the first approach, the advisee must pursue a claim against the contract-partner in order to obtain full compensation, whereas the second approach allows the advisee to seek full compensation from the advisor and leave it to the latter to seek contribution or reimbursement from the contract-partner. The latter approach is preferable. The incorrect information from the advisor wrongfully induced the advisee to acquire the claim against the contract-partner. Rather than having to pursue that claim, the advisee ought to be free to seek full recovery from the advisor and leave it to the two wrongdoers to sort out their internal allocation of liability. This approach is consistent in spirit with the principle that where multiple wrongdoers are liable for the same indivisible harm, the victim can claim full compensation from any of them (ignoring proportionate liability for the moment). An additional, practical problem with the first approach is that if the advisee seeks compensation from the advisor first, the court must guess how much money the advisee will in practice be able to obtain from the contract-partner, who may subsequently turn out to be able to pay less than expected.55 In that case, the ‘once 50

Brownton Ltd v Edward Moore Inbucon Ltd [1985] 3 All ER 499 (CA) 502, 509. Smith Kline & French Laboratories Ltd v Long [1989] 1 WLR 1 (CA) 10, 12; British & Commonwealth Holdings plc v Quadrex Holdings Inc [1995] CLC 1169 (CA) 1226. 52 Royscot Trust Ltd v Rogerson [1991] 2 QB 297 (CA) 303, 308. 53 Such a deduction was favoured by a minority in Marlborough DC v Altimarloch (n 49): [50]–[56] (Elias CJ), [106]–[119], [153]–[154] (Tipping J). 54 Nykredit (n 48) was distinguished on exactly that ground in Eastgate v Morden (n 49) [14]. 55 By contrast, if the court underestimates the sum recoverable from the contract-partner, double recovery by the advisee can be prevented through subrogation, or the imposition of a trust over the excess in favour of the advisor; this will be discussed further below. 51

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and for all’ rule will prevent the advisee from seeking ‘top up’ damages from the advisor.56 The courts have recognised this problem but their response has simply been to say that unsatisfied claims have to be valued in other circumstances too.57 True, a valuation of unsatisfied claims cannot always be avoided. But the point is that it can easily be avoided in the present context by using the second approach, not the first. If the advisee is always permitted to claim full compensation from the advisor, the amount that the contract-partner is practically able to pay will be clear when the advisor seeks contribution or reimbursement, and the guesswork is removed from the process.

B. Allocation of Liability Under a Regime of Joint and Several Liability I now consider the way in which liability is and should be allocated between the advisor and the contract-partner under a regime of joint and several liability. Under such a regime, the advisee can claim full compensation from either wrongdoer, as long as there is no double recovery. The key question is whether, on the one hand, a mutual right to contribution exists between the two wrongdoers, or whether, on the other hand, one of them has a right to be reimbursed by the other, while the latter has no claim at all against the former. Courts in several jurisdictions have considered whether the advisor and the contract-partner are liable in respect of ‘the same damage’ for the purpose of a contribution statute.58 An affirmative answer has been given by courts in the United Kingdom in cases in which the advisee purchased an asset.59 A negative answer has been given by the English Court of Appeal60 and the Victorian Court of Appeal61 in cases in which lenders granted loans to borrowers in reliance on valuers’ negligent overvaluations of the loan securities. Neither Court expressed a view on whether one wrongdoer is entitled to be reimbursed by the other. Judicial disagreement on the availability of contribution in the present context is illustrated by Marlborough District Council v Altimarloch Joint Venture Ltd.62 Prior to entering into the contract of sale, a purchaser of land was incorrectly advised by the local council that the vendor held certain water rights included in the sale. The vendor was liable for breach of contract,63 and the council liable in negligence.

56

The ‘once and for all’ rule in general is discussed by Barnett and Harder (n 16) 40–41. Nykredit (n 48) 1632 (Lord Nicholls); Marlborough DC v Altimarloch (n 49) [54] (Elias CJ), [123] (Tipping J). 58 Civil Liability (Contribution) Act 1978 (UK); Wrongs Act 1958 (Vic) s 23B. 59 Brownton v Inbucon (n 50) 502, 510–11; Eastgate v Morden (n 49); McCallion Brothers Ltd v Fisher [2012] NICh 5 [6]–[8]. 60 Howkins & Harrison v Tyler (n 48) 639–40. 61 St George Bank v Quinerts (n 48) [76]. 62 Marlborough DC v Altimarloch (n 49). I have elsewhere discussed the case in more detail; see Harder (n 44) 132–33. 63 Pursuant to the Contractual Remedies Act 1979 (NZ) s 6. 57

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Three of the five judges in the Supreme Court of New Zealand rejected claims for contribution or reimbursement between the council and the vendor,64 while the minority favoured equitable contribution between the two wrongdoers.65 It seems that the applicability of a contribution statute is generally recognised where the advisee’s claim against the contract-partner is one for damages, but not where it is a claim in debt.66 However, there is no reason why the type of claim should matter,67 assuming that the relevant contribution statute can apply to claims in debt at all.68 The availability of contribution or reimbursement must depend upon whether the two wrongdoers, as between them, are ‘of equal rank’, in which case a mutual right to contribution exists, or whether one of them is primarily, and the other secondarily, liable for the whole of the common liability, in which case the wrongdoer who is secondarily liable has a right to be reimbursed by the other wrongdoer. This in turn depends upon the nature and rationale of each wrongdoer’s liability. The advisee’s contract-partner voluntarily undertook an obligation towards the advisee. It is irrelevant to that obligation that the advisee was wrongfully induced to enter into the contract by incorrect information from the advisor, who is not privy to the contract. There is no reason why performance of the induced contract by the contract-partner, including payment of damages for breach of contract, should entitle him to claim anything from the advisor. By contrast, the advisor’s liability towards the advisee cannot meaningfully be described without reference to the contract-partner’s contractual obligations towards the advisee and a possible breach of them. The advisor is liable for exposing the advisee to the risk of the contract-partner failing to perform properly, and must indemnify the advisee for loss suffered if the risk materialises. The advisor’s obligation is akin to that of a guarantor, who is entitled to be reimbursed by the principal debtor, or an indemnity insurer, who is entitled to be subrogated to the insured’s subsisting claim against the person causing the damage. As between the two wrongdoers, the nature and rationale of their obligations invariably render the contract-partner primarily—and the advisor secondarily—liable for the whole of the common obligation.69

64

Marlborough DC v Altimarloch (n 49) [57] (Elias CJ), [75]–[77] (Blanchard J), [126]–[152] (Tipping J). ibid [225]–[231] (McGrath J, with whom Anderson J agreed on that issue). Contribution under s 17 of the Law Reform Act 1936 (NZ) was impossible since s 17 provides for contribution between tortfeasors only, not wrongdoers in general. Equitable contribution between a contract-breaker and a tortfeasor had been recognised by the trial judge: Altimarloch Joint Venture Ltd v Moorhouse, HC Blenheim, CIV-2005-406-91, 23 March 2009 [41]–[53]. That decision was followed in Lee, Kim and Beveridge as Trustees of the Roy Family Trust v North Shore City Council [2010] NZHC 498 [58]–[60]. 66 This distinction is supported by D Partlett, ‘Apportionment and Tortfeasors in Australia: Professionals’ Liability and Economic Loss: An Outside View’ (2014) 22 Torts Law Journal 1, 14–15. 67 Howkins & Harrison v Tyler (n 48) 638–39 (Scott VC), 641 (Sedley LJ). 68 The Civil Liability (Contribution) Act 1978 (UK) has been said not to apply to claims in debt: Hampton v Minns (n 7) 21; Mitchell (n 24) paras 4.34–4.38; cf Howkins & Harrison v Tyler (n 48) 638–39 (Scott VC), 641 (Sedley LJ). 69 This seems to have been recognised in Howkins & Harrison v Tyler (n 48) 640–41. 65

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Indeed, the idea that the contract-partner is primarily liable tacitly stands behind the first measure of the advisor’s liability towards the advisee, under which the advisor is liable only for the amount not recoverable from the contract-partner. While I argued earlier that the advisor’s liability towards the advisee should not be reduced by the value of the advisee’s claim against the contract-partner, the eventual outcome produced by the first approach is appropriate. The same eventual outcome ought to be reached if the advisor’s liability is not reduced by the value of the advisee’s claim against the contract-partner. The question of deduction, while of practical significance, is a technical question of lower order. It should not affect the answer to the first-order question of who should ultimately bear liability. Even under the second measure of the advisor’s liability, recoveries between the three parties should eventually lead to the outcome that the advisor bears liability only for the amount not recoverable from the contract-partner. It follows that the contract-partner should never be entitled to claim contribution or reimbursement from the advisor.70 The best way of achieving this outcome in the presence of a contribution statute is to interpret the statute so as to be inapplicable in the present context. It might be thought that an allocation of shares of nil and 100 per cent under a contribution statute would produce the same outcome. However, this would be problematic, for three reasons. First, the application of a contribution statute would create the danger that contribution shares other than nil and 100 per cent might incorrectly be allocated in some cases. Secondly, in cases in which the advisee has sued only the contract-partner, the applicability of a contribution statute would permit the latter to join the advisor as a third party, since such a joinder requires only the availability of contribution in principle.71 Thirdly, the applicability of a contribution statute in certain circumstances under a regime of joint and several liability may affect the applicability of a proportionate liability statute in the same circumstances. This will be discussed further below. It can now be finalised how liability ought to be allocated under the two measures of the advisor’s liability. If, as I have argued is the appropriate course, the advisor’s liability towards the advisee is not reduced by the value of the advisee’s claim against the contract-partner, payment by either wrongdoer to the advisee will discharge both wrongdoers’ liabilities, to the extent of ‘overlap’. This prevents double recovery by the advisee.72 If the contract-partner pays, he ought to have no

70 Where the advisee’s entry into the contract was wrongfully induced by incorrect advice from two or more advisors acting independently of each other, a mutual right to contribution should, and does, exist between the advisors: Nationwide v Dunlop Haywards (n 18); E Surv Ltd v Goldsmith Williams Solicitors [2014] EWHC 1104 (Ch), [2014] PNLR 605. 71 The advisor was successfully so joined in Eastgate v Morden (n 49); McCallion Brothers v Fisher (n 59). 72 If payment by one wrongdoer did not discharge any part of the other wrongdoer’s liability towards the advisee, double recovery by the advisee could still be prevented by subrogating the paying wrongdoer to the advisee’s subsisting claim against the other wrongdoer. However, at common law, subrogation to a subsisting right has been rejected for persons other than indemnity insurers: Islington LBC v University College London Hospital NHS Trust [2005] EWCA Civ 596, [2006] BLGR 50 [38]–[41].

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claim for contribution or reimbursement against the advisor because the contractpartner’s liability is primary. If the advisor pays, he should, as someone whose liability is merely secondary, have a right to be reimbursed by the contract-partner. This right to reimbursement should be accompanied by the advisor being subrogated, to the extent of his payment, to the advisee’s extinguished claim against the contract-partner. If, contrary to the view I have expressed, the advisor’s liability towards the advisee is reduced by the value of the advisee’s claim against the contract-partner, then performance or payment of damages by the contract-partner will not discharge the advisor’s liability towards the advisee, and the contract-partner will have no claim for contribution or reimbursement against the advisor. If the advisor pays damages to the advisee, it is usually pointless for the advisor to pursue a claim for reimbursement against the contract-partner since the advisor is liable only for the amount thought to be irrecoverable from the contract-partner. However, the contract-partner may turn out to be able to pay more than initially anticipated. If, in such a case, the advisee in fact recovers more from the contract-partner than was anticipated when the advisor’s liability was calculated, then the excess ought to end up in the advisor’s pocket, according to the policy considerations discussed before. The way of achieving this depends upon whether payment by the advisor is thought to discharge—to the extent of that payment—the contract-partner’s obligation towards the advisee. If such a discharge is thought to occur, the advisor ought to be entitled to claim reimbursement from the contract-partner. However, this claim ought to be regarded as subordinate to the advisee’s claim against the contract-partner, since the advisee would not obtain full compensation were her claim to compete with the advisor’s reimbursement claim.73 If payment by the advisor is thought not to discharge any part of the contract-partner’s obligation towards the advisee, the advisee will remain entitled to attempt to recover the supposedly irrecoverable part of her claim against the contract-partner.74 Any amount actually recovered by the advisee ought to be held on trust for the advisor. This solution was endorsed by Scott VC in the English Court of Appeal in Howkins & Harrison (a firm) v Tyler.75

73 A competition between the advisor and the advisee would have to be prevented also in respect of the advisor’s subrogation to the extinguished part of the advisee’s claim against her contract-partner, which ought to accompany the claim for reimbursement. The different ways of preventing such a competition are discussed by Mitchell and Watterson (n 5) paras 9.50–9.101. 74 To the extent of his payment, the advisor should on principle be subrogated to the advisee’s subsisting claim against the contract-partner: WE Peel and J Goudkamp, Winfield and Jolowicz on Tort, 19th edn (London, Sweet & Maxwell, 2014) para 22.010. But subrogation to a subsisting right is not recognised in the present context. 75 Howkins & Harrison v Tyler (n 48) 640–41. It is also endorsed by Peel and Goudkamp (n 74) para 22.010.

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C. Allocation of Liability Under a Proportionate Liability Regime I now consider how the proportionate liability regime that exists in Australia does and should impact upon the principles discussed so far. In cases not involving personal injury, proportionate liability of concurrent wrongdoers liable for the same indivisible harm is prescribed by Australian federal statutes prohibiting misleading or deceptive conduct in trade or commerce,76 and by statutes in every Australian state and territory in certain circumstances.77 The statutes of the states and territories differ in relation to the wrongs to which they apply.78 It is only necessary here to look at the types of wrong relevant in the present context. The wrong committed by the advisor against the advisee will usually be negligence, often concurrent with the breach of a contractual duty of care. It may alternatively be deceit, and a fraudulent or negligent misstatement may constitute misleading or deceptive conduct prohibited by statute. The proportionate liability statutes of all states and territories apply to a claim for damages for the breach of a contractual or tortious duty of care,79 and most statutes also apply to misleading or deceptive conduct in trade or commerce.80 None of the statutes limits the liability of a concurrent wrongdoer who fraudulently caused the plaintiff ’s damage,81 or intended to cause the plaintiff ’s damage.82 Thus, the statutes of all states and territories apply to the advisor’s wrong if, and only if, the advisor did not intend to harm the advisee. The following discussion assumes the absence of such intention.

76 Australian Securities and Investments Commission Act 2001 (Cth) ss 12GP–12GW; Competition and Consumer Act 2010 (Cth) pt VIA; Corporations Act 2001 (Cth) ss 1041L–1041S. 77 Civil Law (Wrongs) Act 2002 (ACT) s 107F(1)(a); Civil Liability Act 2002 (NSW) s 35(1)(a); Proportionate Liability Act (NT) s 13(1)(a); Civil Liability Act 2003 (Qld) s 31(1)(a); Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 8(2); Civil Liability Act 2002 (Tas) s 43B(1)(a); Wrongs Act 1958 (Vic) s 24AI(1)(a); Civil Liability Act 2002 (WA) s 5AK(1)(a). 78 See Barnett and Harder (n 16) 92–94. 79 Civil Law (Wrongs) Act 2002 (ACT) s 107B(2)(a); Civil Liability Act 2002 (NSW) s 34(1)(a); Proportionate Liability Act (NT) s 4(2)(a); Civil Liability Act 2003 (Qld) s 28(1)(a); Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 4(1); Civil Liability Act 2002 (Tas) s 43A(1)(a); Wrongs Act 1958 (Vic) s 24AF(1)(a); Civil Liability Act 2002 (WA) s 5AI. 80 Civil Liability Act 2002 (NSW) s 34(1)(b); Proportionate Liability Act (NT) s 4(2)(b) ; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 4(1); Civil Liability Act 2002 (Tas) s 43A(1)(b); Wrongs Act 1958 (Vic) s 24AF(1)(b). 81 Civil Law (Wrongs) Act 2002 (ACT) s 107E(1); Civil Liability Act 2002 (NSW) s 34A(1)(b); Proportionate Liability Act (NT) s 7(1) and (2); Civil Liability Act 2003 (Qld) s 32D; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s (3)(2)(c); Civil Liability Act 2002 (Tas) s 43A(5)(b); Wrongs Act 1958 (Vic) s 24AM; Civil Liability Act 2002 (WA) s 5AJA(1)(b). 82 Civil Law (Wrongs) Act 2002 (ACT) s 107E(1); Civil Liability Act 2002 (NSW) s 34A(1)(a); Proportionate Liability Act (NT) s 7(1) and (2); Civil Liability Act 2003 (Qld) s 32E; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s (3)(2)(c); Civil Liability Act 2002 (Tas) s 43A(5)(a); Civil Liability Act 2002 (WA) s 5AJA(1)(a). The same should apply under the Victorian statute, which does not have an express provision, since intended harm is not ‘arising from a failure to take reasonable care’: P Megens and B Cubitt, ‘Contract or Conflict? An Overview of the Proportionate Liability Regime and its Difficulties’ (2009) 23 Commercial Law Quarterly 3, 7.

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The wrong committed by the advisee’s contract-partner is a breach of contract. If it is the breach of a contractual duty of care, it will be subject to proportionate liability, as just mentioned. But it will usually be strict contractual liability, which is contractual liability not dependent upon fault. No Australian proportionate liability statue applies to the liability of an innocent contract-breaker. Where a contract-breaker liable irrespective of fault was in fact at fault, the statutes of Queensland83 and South Australia84 are still inapplicable and it is unclear whether the statutes of the other jurisdictions apply.85 On principle, they should not, since it would be absurd if a contract-breaker’s culpability reduced liability.86 It follows that the advisee’s claim against her contract-partner will rarely be subject to proportionate liability. The following discussion thus focuses on the advisee’s claim against the advisor. The impact of a proportionate liability regime in the circumstances under discussion was considered by the Victorian Court of Appeal in St George Bank Ltd v Quinerts Pty Ltd.87 A bank lent $640,000 to the purchaser of an apartment, secured by mortgage over the property. The bank was relying on a valuer’s statement that the value of the property was $800,000. The borrower and his guarantor defaulted on the loan and went into bankruptcy. A sale of the property by the bank realised $495,000. It turned out that the valuer had been negligent, the true value of the property at the time of the valuation being only $500,000. The bank claimed damages in the amount of $145,000 from the valuer, this being the difference between the amount lent and the proceeds of the sale of the property. The valuer argued that its liability was limited by Part IVAA of the Wrongs Act 1958 (Vic), which prescribes proportionate liability in certain circumstances, because the borrower and the guarantor were concurrent wrongdoers with the valuer.88

83 Civil Liability Act 2003 (Qld) s 28(1)(a). See B McDonald and JW Carter, ‘The Lottery of Contractual Risk Allocation and Proportionate Liability’ (2009) 26 Journal of Contract Law 1, 12; VJ Vann, ‘Equity and Proportionate Liability’ (2007) 1 Journal of Equity 199, 203. 84 Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 4(1). 85 In favour of proportionate liability: Dartberg Pty Ltd v Wealthcare Financial Planning Pty Ltd [2007] FCA 1216, (2007) 164 FCR 450 [27]–[30]; Reinhold v NSW Lotteries Corporation (No 2) [2008] NSWSC 187, (2008) 82 NSWLR 762 [30]; Solak v Bank of Western Australia Ltd [2009] VSC 82, (2009) [35] (rev’d on other grounds, leaving the present issue expressly open, in [2010] VSCA 355, (2010) 31 VR 46 [95]); Fulton Hogan Construction Pty Ltd v Grenadier Manufacturing Pty Ltd [2012] VSC 358 [389]. Against proportionate liability: Serong v Dependable Developments Pty Ltd [2009] VCAT 760 [349]; Spiteri v Stonehenge Homes & Associates Pty Ltd [2011] VCAT 2267 [136]; Perpetual Trustee Co Ltd v CTC Group Pty Ltd (No 2) [2013] NSWCA 58 [22]–[23] (Macfarlan JA). 86 McDonald and Carter (n 83) 15, 18. The opposite view is taken, with the argument that the protection of insurers requires proportionate liability, by O Hayford, ‘Proportionate Liability— Its Impact on Risk Allocation in Construction Contracts’ (2006) 22 Building and Construction Law Journal 322, 329–32; A Stephenson, ‘Proportional Liability in Australia—The Death of Certainty in Risk Allocation in Contract’ [2005] International Construction Law Review 64, 71–73. 87 St George Bank v Quinerts (n 48). 88 The valuer also argued that if the property had been competently valued at $500,000, the bank would still have lent $450,000, and that the bank’s claim should be limited to the difference between its actual loss and the loss it would have suffered under the hypothetical transaction. This argument was unsuccessful, for reasons that it is not necessary to set out here.

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The Victorian Court of Appeal rejected that argument. Nettle JA, who spoke for the Court, reasoned as follows. Part IVAA was intended to put a defendant in exactly the same position as if all other concurrent wrongdoers liable to make contribution under section 23B of the Act were before the Court and of sufficient means to make contribution.89 ‘Loss or damage that is the subject of the claim’ in Part IVAA has the same meaning as ‘the same damage’ in section 23B.90 The borrower and the guarantor were not liable in respect of ‘the same damage’ as the valuer for the purpose of section 23B,91 and were not concurrent wrongdoers with the valuer for the purpose of Part IVAA.92 Nettle JA explained: The loss or damage caused by the borrower and the guarantor was their failure to repay the loan. Nothing which [the valuer] did or failed to do caused the borrower or the lender to fail to repay the loan. The damage caused by [the valuer] was to cause the bank to accept inadequate security from which to recover the amount of the loan. Nothing which the borrower or the lender did or failed to do caused the bank to accept inadequate security for the loan.93

Another decision to consider is that by the High Court of Australia in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd,94 which concerned proportionate liability pursuant to Part 4 of the Civil Liability Act 2002 (NSW). The case did not involve the circumstances now under discussion and will be discussed in more detail below. However, the High Court commented upon Nettle JA’s reasoning in Quinerts. Bell and Gageler JJ in the High Court agreed with that reasoning,95 but the majority did not. After citing the passage from Nettle JA’s judgment quoted in the previous paragraph, French CJ, Hayne and Kiefel JJ observed: In the passage quoted, his Honour tests the damage so identified by reference to causation. In doing so his Honour appears to have assumed that there is some requirement that one wrongdoer contribute to the wrongful actions of the other wrongdoer in order that they cause the same damage. There is no such requirement in Pt 4 of the Civil Liability Act. To the contrary, Pt 4 acknowledges, as does the common law, that a wrongdoer’s acts may be independent of those of another wrongdoer yet cause the same damage.96

This criticism of Nettle JA’s reasoning has some force. Nettle JA chose narrow descriptions of the damage caused by the borrower and the damage caused by the valuer. If the damage suffered by the bank is described more broadly as the loss of part of the money lent, the borrower and the valuer may well be considered liable for the same damage. It must therefore be asked which description of the bank’s damage is preferable. The answer should not depend simply upon factual causation. It should depend upon policy considerations.97 Those will now be examined. 89 90 91 92 93 94 95 96 97

St George Bank v Quinerts (n 48) [59]. ibid [68]. ibid [76]. ibid [77]. ibid [76]. The same view was taken in Kayteal v Dignan (n 44) [67]. Hunt & Hunt Lawyers (n 32). ibid [99], [102]. Hunt & Hunt Lawyers (n 32) [41] (footnote omitted). Partlett, (n 66) 15.

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It shall first be assumed (contrary to what said in Quinerts and endorsed earlier in this paper) that, in the absence of a proportionate liability regime, a mutual right to contribution may in principle exist between the contract-partner (the borrower in Quinerts) and the advisor (the valuer in Quinerts). On that assumption, there can be no doubt that proportionate liability legislation (if applicable) reduces the advisor’s liability towards the advisee. An important effect of the Australian proportionate liability statues is to obviate the need for contribution between concurrent wrongdoers by reducing each wrongdoer’s liability towards the victim to a proportion of the damage. It shall now be assumed (in line with what was said in Quinerts and endorsed earlier in this chapter) that, in the absence of a proportionate liability regime, the contract-partner is primarily, and the advisor secondarily, liable towards the advisee. On that assumption, the application of a proportionate liability regime is problematic. The proportionate liability statutes exclude a right to contribution or reimbursement between concurrent wrongdoers who are each liable for only a proportion of the victim’s damage.98 Thus, in the rare event that the proportionate liability regime applies to the contract-partner’s wrong too,99 the advisor is not allowed to attempt to recover his share of the advisee’s loss from the contractpartner. Where the contract-partner is solvent, the proportionate liability regime (if it applies to the contract-partner’s breach of contract) thus deprives the advisor of the reimbursement that he would otherwise obtain from the contract-partner. In these (rare) circumstances, the advisor is disadvantaged by a regime that has been enacted for the benefit of wrongdoers.100 Furthermore, it is unclear how the advisee’s loss should be apportioned between the two wrongdoers. The proportionate liability statutes provide that the share borne by a concurrent wrongdoer is what the court thinks just, having regard to the wrongdoer’s ‘responsibility’ for the damage.101 The courts have determined a wrongdoer’s ‘responsibility’ in this context in the same way as under a contribution statute, namely by considering the relative degree of departure from the standard of reasonable conduct and the relative causal potency of the conduct.102 In the

98 Civil Law (Wrongs) Act 2002 (ACT) s 107H; Civil Liability Act 2002 (NSW) s 36; Proportionate Liability Act (NT) s 15(1); Civil Liability Act 2003 (Qld) s 32A; Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 9; Civil Liability Act 2002 (Tas) s 43C(1); Wrongs Act 1958 (Vic) s 24AJ; Civil Liability Act 2002 (WA) s 5AL(1). 99 Because that wrong is a breach of a contractual duty of care or the contract-partner, being strictly liable, was at fault and the proportionate liability statute is considered applicable in that case. 100 Where the contract-partner is insolvent, a proportionate liability regime benefits the advisor by reducing his liability towards the advisee. 101 Civil Law (Wrongs) Act 2002 (ACT) s 107F(1)(a); Civil Liability Act 2002 (NSW) s 35(1)(a); Proportionate Liability Act (NT) s 13(1)(a); Civil Liability Act 2003 (Qld) s 31(1)(a); Law Reform (Contributory Negligence and Apportionment of Liability) Act 2001 (SA) s 8(2); Civil Liability Act 2002 (Tas) s 43B(1)(a); Wrongs Act 1958 (Vic) s 24AI(1)(a); Civil Liability Act 2002 (WA) s 5AK(1)(a). 102 Reinhold v NSW Lotteries (n 85) [60]; GEJ & MA Geldard Pty Ltd v Mobbs (No 2) [2011] QSC 33, [2012] 1 Qd R 120 [19]–[21]; Lovick & Son Developments Pty Ltd v Doppstadt Australia Pty Ltd [2012] NSWSC 529 [257]; Bathurst Regional Council v Local Government Financial Services Pty Ltd (No 5) [2012] FCA 1200 [3517].

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present context, the shares to be borne by the wrongdoers in the absence of a proportionate liability regime should always be nil for the advisor and 100 per cent for the contract-partner. If these figures were applied under a proportionate liability regime, the advisor’s share would always be nil. But the proportionate liability statutes cannot have been intended to render advisors free from any liability in the present context. It has been suggested that the advisor’s share under a proportionate liability regime should always be set at 100 per cent.103 This is a workable solution where the type of wrong committed by the contract-partner does not fall within the scope of the relevant proportionate liability statute. In the rare event that it does fall within that scope, a decision to set the advisor’s share at 100 per cent means that the contract-partner’s share is nil, and the contract-partner is neither liable towards the advisee, nor obliged to reimburse the advisor. But the proportionate liability statutes cannot have been intended to render the contract-partner free from any liability towards the advisee. In the absence of appropriate criteria yielding shares other than nil and 100 per cent, the two wrongdoers would have to bear equal shares. This would be awkward. Consequently, wrongdoers should not be regarded as ‘concurrent’ for the purpose of a proportionate liability statute unless a right to contribution would in principle exist between them in the absence of proportionate liability.104 In that respect, the decision by the Victorian Court of Appeal in Quinerts is correct on principle and was not disapproved by the majority in the High Court in Hunt & Hunt Lawyers, who left that issue open.105 As argued earlier in this chapter, the decision in Quinerts was also correct on principle in holding that no right to contribution exists between the borrower and the valuer in the absence of a proportionate liability regime. This issue too was left open by the majority in Hunt & Hunt Lawyers. While, as mentioned before, the reason given by the Victorian Court of Appeal in Quinerts for its denial of contribution was dubious, the outcome was correct: the advisor (the valuer in Quinerts) ought to be liable for the whole of the advisee’s loss, even if the type of wrong committed by the advisor falls within the scope of a proportionate liability statute.106 Since the High Court in Hunt & Hunt Lawyers stopped short of

103 L Warnick, ‘Proportionate Liability in the High Court’ (2013) 87 Australian Law Journal 864, 870–71. 104 B McDonald, ‘Proportionate Liability in the Context of Fraud and Negligence: Is There a Concurrent Liability?’ (2013) 24 Journal of Banking and Finance Law and Practice 136, 138. 105 Hunt & Hunt Lawyers (n 32) [21]. 106 Where the advisee’s entry into the contract was induced by incorrect advice from two or more advisors acting independently of each other, the proportionate liability regime applies to the advisors’ liabilities: Woods v De Gabriele [2007] VSC 177; Metzke (t/as Metzke & Allen) v Sali [2010] VSCA 267 [90]–[93]; Fudlovski v JGC Accounting & Financial Services Pty Ltd [2013] WASC 301; Wealthsure Pty Ltd v Selig [2014] FCAFC 64. Each advisor is liable for only part of the advisee’s loss, but the shares of all advisors combined ought to cover the whole loss.

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describing the outcome in Quinerts as wrong,107 Quinerts is still good authority in the circumstances under discussion108 and ought to be followed.

IV. The Advisee Pursues a Claim for Misrepresentation Against the Contract-Partner I now consider the allocation of liability where a person (the advisee) entered into a contract in reliance on incorrect information independently provided by both the contract-partner and an advisor who is not privy to the contract. It is assumed that each misrepresentation was wrongful and was a factual cause of the advisee’s entry into the contract.109 The contract-partner’s misrepresentation may render him liable in tort (deceit or negligence) or under statute110 (or both) to compensate the advisee for the loss suffered as a result of entering into the contract (reliance loss).111 The contract-partner may also be liable for breach of contract, but it is assumed that the advisee has elected to pursue her contract-partner in respect of the misrepresentation and not for breach of contract.112 The advisor may be liable towards the advisee in contract or tort (or both)113 for the advisee’s reliance loss, which is the value of what the advisee has given away under the induced contract.114 These circumstances cannot arise in New Zealand, since section 6 of the Contractual Remedies Act 1979 (NZ) provides that a contracting party who made a

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McDonald (n 104). The opposite view is taken by Warnick (n 103) 870. 109 Each misrepresentation was undoubtedly a factual cause of the advisee’s loss where a correct statement by either wrongdoer (or both) would have prevented the advisee from entering into the contract. Where correct statements by both wrongdoers were necessary to prevent the advisee from entering into the contract, each wrongdoer’s statement should still be regarded as a factual cause of the advisee’s loss. But this will be controversial if the case is conceptualised as one of dependent double omissions; see J Stapleton, ‘Choosing What We Mean by “Causation” in the Law’ (2008) 73 Missouri Law Review 433, 477–79. 110 Misrepresentation Act 1967 (UK) s 2; Civil Law (Wrongs) Act 2002 (ACT) s 174; Misrepresentation Act 1972 (SA) s 7; Competition and Consumer Act 2010 (Cth) sch 2, s 18; Fair Trading Act 1986 (NZ) s 9. 111 The controversial possibility of compensating expectation loss under the statutes mentioned in the preceding footnote will be ignored. See William Sindall plc v Cambridgeshire County Council [1994] 1 WLR 1016 (CA) 1037–38, 1044; Floods of Queensferry Ltd v Shand Construction Ltd [2000] BLR 81 (QB) 94; Murphy v Overton Investments Pty Ltd [2004] HCA 3, (2004) 216 CLR 388. 112 The two claims cannot be accumulated: J Cartwright, Misrepresentation, Mistake and Non-Disclosure, 3rd edn (London, Sweet & Maxwell, 2012) para 2.13. 113 In Australia, the advisor may also be liable for misleading or deceptive conduct in trade or commerce, pursuant to s 18 of the Australian Consumer Law, contained in the Competition and Consumer Act 2010 (Cth) sch 2. 114 It has not been suggested that the value of the advisee’s claim against her contract-partner (either for misrepresentation or breach of contract) is to be deducted in measuring the advisor’s liability. 108

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misrepresentation inducing the other party to enter into the contract is liable ‘in the same manner and to the same extent as if the representation were a term of the contract that has been broken’, and is not liable in deceit or negligence. For this reason, this section considers only cases from Australia and the United Kingdom.

A. Allocation of Liability Under a Regime of Joint and Several Liability In the context of joint and several liability, I suggested earlier in this chapter that where the advisee claims damages for breach of contract from the contract-partner, payment of compensation by the advisor should entitle the advisor to claim reimbursement from the contract-partner (to the extent of the common liability), whereas payment of compensation by the contract-partner should not entitle him to claim either contribution or reimbursement from the advisor. I argued that the advisor, who in those circumstances is liable for wrongfully exposing the advisee to a breach of contract by the contract-partner, is in a position similar to that of a guarantor, who is entitled to be reimbursed by the principal debtor, or that of an indemnity insurer, who is entitled to be subrogated to the insured’s subsisting claim against the person causing the damage. As between the two wrongdoers, the contract-partner’s liability is primary and the advisor’s secondary. The same argument cannot be made where the advisee pursues a claim for misrepresentation against the contract-partner. Since the advisee does not claim damages for breach of contract, whether or not such a breach occurred, it cannot be said that the advisor is liable for exposing the advisee to such a breach. Nor can it be said that the advisor exposed the advisee to the consequences of a misrepresentation by the contract-partner, because it could equally be said that the contract-partner exposed the advisee to the consequences of a misrepresentation by the advisor, it being assumed that each wrongdoer’s misrepresentation was a factual cause of the advisee’s entry into the contract. It is not a case where one wrongdoer should be primarily, and the other secondarily liable for the whole of the common obligation. A mutual right to contribution should therefore exist. Nevertheless, the High Court of Australia rejected an equitable contribution claim by the contract-partner in Burke v LFOT Pty Ltd,115 a case decided before proportionate liability statutes were enacted in Australia. A company purchased land in reliance on misrepresentations by the vendor. In breach of his duty of care towards the company, its solicitor, who was also one of its directors, failed to check the accuracy of the vendor’s statements. The trial judge ordered the vendor to compensate the purchaser’s reliance loss, and ordered the purchaser’s solicitor to pay half that sum to the vendor as contribution. A majority in the High Court of Australia overturned the order of contribution. Callinan J rejected contribution on the ground that there was no common liability 115

Burke v LFOT (n 11).

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between the vendor and the purchaser’s solicitor.116 McHugh J expressed the same view as Callinan J,117 but based his rejection of contribution upon the argument that it would be inequitable if the purchaser’s solicitor, who had gained nothing from the contract of sale, made contribution to the vendor, who would then retain part of his ill-gotten gain.118 Gaudron ACJ and Hayne J based their rejection of contribution upon the same notion of the vendor’s unjust enrichment,119 and added that contribution might also be unavailable because neither the culpability of the two defendants nor the causal significance of their conduct was equal or comparable.120 Kirby J, dissenting, upheld the trial judge’s contribution order. In response to the argument that there was no common liability between the vendor and the purchaser’s solicitor, he said that the allocation of liability between the two defendants should not depend upon whom the purchaser had chosen to sue.121 Kirby J regarded as circular the argument that contribution by the purchaser’s solicitor would lead to an unjust enrichment of the vendor; it could equally be said that the rejection of contribution would unjustly enrich the purchaser’s solicitor.122 Kirby J’s arguments are compelling. It is inappropriate to reject a contribution claim by the contract-partner in every case, irrespective of either party’s culpability. Such rejection might be acceptable where, as in Burke v LFOT Pty Ltd, the advisor relied on the contract-partner’s misrepresentation and—as between the two wrongdoers—was entitled to do so. It would then be a case of contribution shares being nil and 100 per cent respectively. But things are markedly different, for example, where the contract-partner relied on the advisor’s misrepresentation and, as between the two wrongdoers, was entitled to do so. Each wrongdoer should in principle be entitled to contribution, unless one of them is ultimately liable by virtue of an agreement between them.123 The Court of Appeal for England and Wales recognised a mutual right to contribution in the present context in Downs v Chappell.124 Mr and Mrs Downs purchased a bookshop business from Mr Chappell after inflated figures as to the bookshop’s recent turnover and profit had been provided to them by Mr Chappel

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Burke v LFOT (n 11) [143]–[144]. ibid [52]. ibid [54], [59], [67]. The same argument is made by NG Rein, ‘Just and Equitable! The Relevance of Benefit in a Claim for Contribution against a Joint Tortfeasor or Wrongdoer’ (2001) 9 Torts Law Journal 298. In Eastgate v Morden (n 49) [21], where the advisee claimed damages for breach of contract from the contract-partner, the contract-partner’s contribution share was tentatively set at 100 per cent on the ground that contribution from the advisor would unjustly enrich the contract-partner. 119 ibid [22]. 120 ibid [16]–[19]. 121 ibid [104]. 122 ibid [111]. 123 The advisor was ordered to pay 50 per cent contribution to the contract-partner in Kestrel Holdings Pty Ltd v APF Properties Pty Ltd [2009] FCAFC 144, (2009) 260 ALR 418 [185], where Burke v LFOT was distinguished on the (unconvincing) ground that the advisee’s causes of actions against the wrongdoers were the same in casu but had been different in Burke v LFOT. 124 Downs v Chappell [1997] 1 WLR 426 (CA). An aspect of the decision that is not relevant for present purposes was overruled in Smith New Court Securities Ltd v Citibank NA [1997] AC 254 (HL) 283. 117 118

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and confirmed by his accountants. The business proved a failure, and Mr and Mrs Downs claimed compensation of their reliance loss from both Mr Chappell and his accountants. Mr Chappell was held liable in deceit, and his accountants were held liable in negligence, the amount of liability being the same. Liability was apportioned in equal shares between Mr Chappell and his accountants pursuant to the Civil Liability (Contribution) Act 1978 (UK). The Court of Appeal said that Mr Chappell’s higher degree of culpability was counterbalanced by the fact that Mr and Mrs Downs had placed greater reliance on the accountants’ statement.125 The Court was unimpressed by the accountants’ argument that Mr Chappell ought to bear a larger share of the liability because he had benefited from his contract with the purchasers.126 The High Court of Northern Ireland followed suit in Young v Hamilton.127 Before purchasing certain property, the plaintiffs asked the vendors whether they knew of any person ‘claiming or having adverse rights’ over that property, and whether litigation was ‘threatened or pending or anticipated’ in relation to the property. The vendors gave a negative answer to both questions, even though they knew that the neighbours claimed to own part of the property and had consulted a solicitor. After purchasing the property, the plaintiffs became aware of the neighbours’ claim. They successfully sued the vendors for misrepresentation. In the same action, the plaintiffs successfully sued their solicitor in negligence for failing to discover the neighbours’ claim. Applying the Civil Liability (Contribution) Act 1978 (UK), the Court held that, as between the vendors and the plaintiffs’ solicitor, the vendors’ share of responsibility for the plaintiffs’ loss was 75 per cent and the solicitor’s share was 25 per cent.128

B. Allocation of Liability Under a Proportionate Liability Regime An exposition of the way in which liability is and should be allocated in the present context under Australian proportionate liability provisions requires an examination of the decision of the High Court of Australia in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd,129 even though this case did not involve exactly the circumstances presently discussed. C and V entered into a business venture and opened a joint bank account for that purpose. Unknown to V, C approached Mitchell Morgan Nominees Pty Ltd (MM) for a loan to the joint account on the security of a mortgage over a property owned by V. C had obtained possession of the certificate of title for that property, forged V’s signature on the loan document and the mortgage document, and had his cousin, a solicitor, dishonestly certify to MM that he had identified V and 125 126 127 128 129

Downs v Chappell (n 124) 445. ibid. Young v Hamilton [2012] NICh 4. ibid [38]. Hunt & Hunt Lawyers (n 32).

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witnessed V’s signatures on the documents. A mortgage was registered over the property and a loan of approximately $1m advanced. C withdrew the money from the joint bank account by forging V’s signature. V discovered the fraud, and a dispute arose between V and MM in respect of the validity of the mortgage. The loan agreement was void by virtue of the forgery, and V was not liable to MM under it. The mortgage enjoyed the benefit of indefeasibility of title,130 but because the only debt stated to be secured by the mortgage was V’s indebtedness under the loan agreement (which was void), the mortgage secured nothing and was liable to be discharged. Hunt & Hunt Lawyers (H&H), who had drawn up the mortgage document for MM, had been negligent in not including in the mortgage document a covenant to repay a stated amount. Since both C and his cousin were bankrupt, MM sought compensation from H&H for the money lost. H&H argued that their liability was limited to a proportion of MM’s loss pursuant to Part 4 of the Civil Liability Act 2002 (NSW) because the fraudsters were concurrent wrongdoers with H&H. A majority in the High Court of Australia agreed with that argument. French CJ, Hayne and Kiefel JJ held that the fraudsters and H&H were concurrent wrongdoers liable for the same damage. They disagreed with the following identification by the New South Wales Court of Appeal of two separate losses suffered by MM: ‘in the one case paying out money when it would not otherwise have done so, and in the other case not having the benefit of security for the money paid out’.131 French CJ, Hayne and Kiefel JJ argued that the New South Wales Court of Appeal had pointed to the immediate effects of the fraudsters’ conduct and of H&H’s negligence, but that those effects could not be equated with MM’s loss or damage.132 That loss or damage, they said, was MM’s inability to recover the moneys advanced.133 They observed: [T]here were two conditions necessary for the mortgage to be completely ineffective: (a) that the loan agreement was void; and (b) that the mortgage document did not itself contain the debt covenant, but did so solely by reference to the loan agreement. Hunt & Hunt was responsible for (b), but the fraudsters were responsible for (a).134

The minority in the High Court (Bell and Gageler JJ) took the view that the fraudsters and H&H were not liable for the same damage because the duty of care breached by H&H aimed to protect MM from the fraud which occurred: Where the wrongful act or omission of B is to breach a duty of care that B has to protect A from the consequences of a possible wrongful act or omission on the part of C, the harm to A that is caused by that act or omission on the part of B lies in the absence of protection in the event that the wrongful act or omission on the part of C occurs. The consequences of the wrongful act or omission on the part of C are not themselves part of that harm.135

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Pursuant to the Real Property Act 1900 (NSW) s 42. Mitchell Morgan Nominees Pty Ltd v Vella [2011] NSWCA 390, (2011) 16 BPR 30, 189 [41] (Giles JA, giving the leading judgment). 132 Hunt & Hunt Lawyers (n 32) [30]. 133 ibid [28]. 134 ibid [49]. 135 ibid [94]. 131

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Bell and Gageler JJ argued that the application of proportionate liability legislation in those circumstances ‘would be transferring to A some or all of the very risk against which it was the duty of B to protect A’.136 French CJ, Hayne and Kiefel JJ took a different view of H&H’s duty towards MM: It may be doubtful that Hunt & Hunt’s duty is properly described in these terms. It was certainly to protect Mitchell Morgan’s economic interests and as such would require any security drawn to be effective, but this is so regardless of the reasons why moneys advanced might not be recovered.137

Both the majority and the minority illustrated their arguments by reference to a hypothetical case that had been put forward by the Victorian Court of Appeal in Quinerts, a case considered earlier in this chapter. A thief steals money from a bank. Because of negligence on the part of its insurance brokers, the bank finds that its insurance does not cover the risk of theft. The Victorian Court of Appeal in Quinerts argued that the thief is not a concurrent wrongdoer in relation to the bank’s claim against its insurance brokers.138 Bell and Gageler JJ in Hunt & Hunt Lawyers agreed,139 but French CJ, Hayne and Kiefel JJ disagreed: In that analogy, it is correct to describe the damage or loss suffered by the bank as its inability to recover the moneys stolen. One source of recovery could have been its insurer, hence the brokers were a cause of its loss. The other possible source of recovery is the thief. The harm to the bank’s economic interests, at a certain point, is the inability to recover from either source.140

I now consider how the applicability of proportionate liability legislation in circumstances such as those present in Hunt & Hunt Lawyers should be approached on principle. As argued earlier in this chapter, proportionate liability legislation ought to apply only where a mutual right to contribution would otherwise exist. Bell and Gageler JJ took this view,141 but French CJ, Hayne and Kiefel JJ left that issue open.142 Thus, the first question to ask is whether, in the absence of proportionate liability legislation, a mutual right to contribution would exist between the fraudsters and H&H,143 or whether it is a case where one wrongdoer is primarily, and the other secondarily liable for the whole of the common obligation. As argued earlier in this chapter, that question must be answered by reference to the nature and rationale of each wrongdoer’s liability. Again, Bell and Gageler JJ did so by referring to the purpose of the duty of care breached by H&H. Thus,

136 ibid [95]. For the same reason, joint and several liability on B’s part is favoured by the Restatement (Third) of Torts: Apportionment of Liability (2000) § 14, discussed by Partlett (n 66) 16–18. 137 Hunt & Hunt Lawyers (n 32) [54]; footnote omitted. 138 St George Bank v Quinerts (n 48) [82]. 139 Hunt & Hunt Lawyers (n 32) [96]. 140 ibid [40]. 141 ibid [88]. 142 ibid [21]. 143 As argued for by McDonald (n 104) 138.

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they used the correct methodology. It does not follow that their ultimate solution is unchallengeable. The majority’s view on the purpose of the duty of care breached by H&H cannot be rejected as unarguable. It is not necessary here to reach a conclusive view on that issue. What is necessary is to consider the impact that the High Court’s decision in Hunt & Hunt Lawyers may have in the circumstances presently discussed, where the advisee has a claim against the advisor and has (and pursues) a claim against the contract-partner for misrepresentation. Even though Hunt & Hunt Lawyers did not involve those circumstances, the High Court’s approach is likely to prompt courts to limit the advisor’s liability by virtue of proportionate liability legislation in the present context too.144 I argued earlier that proportionate liability legislation ought to apply only where a mutual right to contribution would otherwise exist. On that view, the High Court’s decision in Hunt & Hunt Lawyers, which favoured proportionate liability, is at odds with the High Court’s decision in Burke v LFOT Pty Ltd mentioned before, which denied the contract-partner a right to contribution from the advisor. However, since the majority in the High Court in Hunt & Hunt Lawyers rejected a necessary link between the availability of contribution under joint and several liability and the applicability of proportionate liability legislation, the two decisions do not strictly conflict. If, as argued earlier in this chapter, a mutual right to contribution under joint and several liability is recognised in the present context, the advisor and the contract-partner ought to be regarded as ‘concurrent wrongdoers’ for the purpose of proportionate liability legislation. The advisor’s liability should thus be limited to a proportion of the advisee’s loss, as should be the contract-partner’s liability if his misrepresentation falls within the scope of the proportionate liability statute. The High Court’s decision in Hunt & Hunt Lawyers leads to the correct outcome in the present context.

V. Conclusion The imposition of tortious liability on professional advisors in the wake of Hedley Byrne v Heller has increased the frequency of claims for contribution or reimbursement between professional advisors and the contract-partners of their clients. A contract-partner who has breached the contract with the advisee and paid compensation may wish to recoup all or some of that compensation from an independent advisor whose incorrect advice wrongfully induced the advisee to enter into the contract. By the same token, an advisor who is liable towards the

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See McBride v Christio’s Australia Pty Ltd [2014] NSWSC 1729 [445]–[461].

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advisee and has paid compensation may wish to recoup all or some of that compensation from the advisee’s contract-partner. The allocation of liability between the wrongdoers depends upon whether the advisee was wrongfully induced to enter into the contract not only by incorrect information from the advisor, but also by incorrect information from the contract-partner, and upon whether the advisee pursues the misrepresentation claim against the contract-partner. Where the advisee claims damages for breach of contract from the contractpartner, it is first necessary to decide how the advisor’s liability is measured. In some cases, the measure was simply the value of everything the advisee has given away under the induced contract. In other cases, the value of the advisee’s claim against the contract-partner was taken into account, limiting the advisor’s liability to the amount (if any) not recoverable from the contract-partner. The first measure is preferable, since it allows the advisee to claim compensation for the whole reliance loss from the advisor, and prevents the risk of a shortfall in compensation if it turns out that a smaller sum than estimated can actually be obtained from the contract-partner (because of insolvency, for example). Under a regime of joint and several liability, the question arises whether a mutual right to contribution exists between the two wrongdoers. Different answers have been given in different contexts. On principle, the advisor ought to have a right to be reimbursed by the contract-partner, and the latter ought to have no claim for contribution or reimbursement against the former. This is because it is of no relevance to the contract-partner’s liability for breach of contract that the advisee was induced to enter into the contract by incorrect information from the advisor; whereas the advisor’s liability cannot be described without reference to the contract-partner’s contractual obligations towards the advisee and a possible breach of them. The advisor is in a position similar to that of a guarantor or an indemnity insurer. The Victorian Court of Appeal in St George Bank Ltd v Quinerts Pty Ltd refused to limit the advisor’s liability to a proportion of the advisee’s loss by virtue of proportionate liability legislation. This is correct on principle. A proportionate liability regime ought to apply only where a mutual right to contribution would otherwise exist. As just mentioned, a right to contribution should not exist where the advisee claims a contractual debt or damages for breach of contract from the contract-partner. Things are different where the advisee was induced to enter into the contract not only by incorrect information from the advisor, but also by incorrect information from the contract-partner, and the advisee pursues the misrepresentation claim against the contract-partner. In those circumstances, it cannot be said that—as between the two wrongdoers—the contract-partner is always primarily, and the advisor always secondarily, liable for the whole of the common obligation (in the absence of an agreement between the two wrongdoers). Under a regime of joint and several liability, a mutual right to contribution should in principle exist

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between the wrongdoers. Under the Australian proportionate liability regime, the advisor’s liability should be limited to a proportion of the advisee’s loss, as should the contract-partner’s liability if his misrepresentation falls within the scope of the proportionate liability statute. Such a limitation of liability is indeed the likely effect of the decision by the High Court of Australia in Hunt & Hunt Lawyers v Mitchell Morgan Nominees Pty Ltd.

Part 4

Comparative Perspectives

9 What are We Doing Here? The Relationship Between Negligence in General and Misstatements in English Law CHRISTIAN WITTING

I. Introduction This chapter will investigate whether the law regarding negligent misstatements causative of purely financial loss1 should be treated as something different and apart from accepted tort doctrines, with particular attention being paid to developments in English law. It begins by examining a trend by theorists to argue that recovery for such misstatements is not part of, or does not fit within, a rightsbased view of the law of torts/negligence. This is an extreme position that can (and will) be quickly disposed of. The chapter then considers the less controversial idea that, although the law of negligent misstatements is a part of, or closely related to, the law of negligence, it is nevertheless distinct because it has its own test for duty of care based upon the presence of an ‘assumption of responsibility’. The phrase ‘assumption of responsibility’ featured in Hedley Byrne & Co Ltd v Heller & Partners Ltd2 and was prominent in the decision of the House of Lords in Williams v Natural Life Health Foods Ltd.3 However, it will be argued that it was invoked, in the latter case, as a mere device for the protection of small company directors and to reinforce rules of separate legal personality. The invocation of ‘assumption of responsibility’ as an independent test for duty is contrary to both its usage in the Hedley Byrne case and observations in Customs and Excise Commissioners v Barclays Bank plc4 about the similarities between proximity and 1 The chapter will explore what are termed ‘orthodox’ misstatement cases. For discussion of ‘extended Hedley Byrne’ cases, see C Witting, Liability for Negligent Misstatements (Oxford, Oxford University Press, 2004) ch 11. 2 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. 3 Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830. 4 Customs and Excise Commissioners v Barclays Bank plc [2007] 1 AC 181.

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the ‘objective’ version of the assumption of responsibility test, such that the former encompasses the latter. The chapter assumes that the law of negligence is a unified whole and that a common set of elements can be employed to determine cases regardless of the type of loss caused. Claims for negligent misstatements causative of financial loss are properly determined by the application of the accepted elements of negligence, particularly those of proximity, causation and remoteness. Policy also plays a part in determining misstatement cases because financial interests are not highly valued in the law of torts5 and because of the potential for a wide vista of liability arising from the indirect means by which harm arises. The focus of discussion in this chapter will be upon the use of proximity-based reasoning in the case law and literature.6 It builds upon the writer’s previous work to provide an account of those proximity factors that are relevant to misstatement cases, proximity being asserted to subsist in the ‘pathways to harm’ that arise between the parties prior to a negligent interaction. Furthermore, the chapter identifies several factors that have been wrongly treated as examples of proximity and explains why they should be treated as secondary reasons for recognising duties of care. The direction of travel in this chapter is away from more outlandish conceptions of misstatement liability towards a more realistic conception. However, this is not to say that the chapter’s conclusions simply reflect the current English law. The chapter is testament to the continuing problems experienced in determining the duty of care in misstatement cases and presents an argument for the resolution of those problems. Thus, although it would be a mistake to treat misstatement liability as different and apart from the tort of negligence, what we should be doing in debating the law within the pages of this book is to fine-tune our understanding of the duty of care as a part of a broader study of negligence.

II. Misstatements as Something Other than Tort/Negligence The first claim to be investigated is that, contrary to assumptions made during the course of 50 years of case law and scholarship, negligent misstatements do not actually fall within, or belong to, either the law of torts or the law of 5 cf M Bussani and VV Palmer, ‘The Notion of Pure Economic Loss and its Setting’ in M Bussani and VV Palmer (eds), Pure Economic Loss in Europe (Cambridge, Cambridge University Press, 2003) 21–22 (noticing a hierarchy of protected interests but arguing that other factors, such as the degree of fault in the defendant, are important in determining liability). 6 For a discussion of policy in this area, see C Witting, ‘Distinguishing between Property Damage and Pure Economic Loss: A Personality Thesis’ (2001) 21 Legal Studies 481; K Barker, ‘Economic Loss and the Duty of Care: A Study in the Exercise of Legal Justification’ in C Rickett (ed), Justifying Private Law Remedies (Oxford, Hart Publishing, 2008) ch 8.

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negligence. This type of claim has been given prominence by corrective justice/ rights theorists and it should be acknowledged from the outset that the present writer is unpersuaded by this type of scholarship. Suffice to say that writers like Cane and Keating have, between them, convincingly undermined claims that corrective justice and will-theory-inspired concepts of rights are fundamental to the law of torts.7 The rights conception of tort is not analytically useful for a number of reasons, including its eviscerated conception of the person and neglect of relationships with others,8 reliance upon the fallacy that tort deals only with extant rights,9 the failure to explain where rights come from,10 the preferment of coherence over other values in the operation of the tort system of redress,11 and inconsistency with the judicial norm-making role. The rights theorists would deny the function of the law of torts as a guide to future conduct and would deny the capacity of judges to influence the scope and application of tort rules in executing that function.12 Much like a birthday sparkler, it would seem that the rights fad will eventually exhaust itself. However, in the meantime, one cannot deny the interesting nature of claims made by corrective justice/rights theorists in areas like that of misstatements causative of financial loss. Their claims are interesting at least in so far as we come to know the law better when we can contrast it with what it is not. In Rediscovering the Law of Negligence (‘RLN’),13 Allan Beever argues that relevant principles regarding the duty of care in negligence can be distilled from ‘five great cases’ and that the principles so discerned are reflective of corrective justice.14 Corrective justice is said to explain the various elements of negligence, including the ‘neighbour principle’, and the inter-relation between them.15 His conception of corrective justice is constructed upon a base of correlative rights and duties. Thus, ‘a wrong-sufferor has a claim in corrective justice only if the wrongdoer violated her right, and she can claim from the wrongdoer only if her right was violated by that particular wrongdoer’.16 A key point is that Beever believes that

7 P Cane, ‘Rights in Private Law’ in D Nolan and A Robertson (eds), Rights and Private Law (Oxford, Hart Publishing, 2012) ch 2; GC Keating, ‘Is the Role of Tort to Repair Wrongful Losses?’ in D Nolan and A Robertson (eds), Rights and Private Law (Oxford, Hart Publishing, 2012) ch 13. Keating’s critique necessarily implies the view favoured by the present writer, that tort obligations are instrumentalist in nature and have a forward-looking aspect in that they are intended to guide future conduct: ibid 396–97. 8 Cane (n 7) 55–56. 9 K Barker, ‘Relational Economic Loss and Indeterminacy : The Search for Rational Limits’ in S Degeling, J Edelman and J Goudkamp (eds), Torts in Commercial Law (Sydney, Thomson Reuters, 2011) 171–73; S Waddams, Dimensions of Private Law: Categories and Concepts in Anglo-American Legal Reasoning (Cambridge, Cambridge University Press, 2003) 41. 10 Cane (n 7) 52ff. 11 ibid 39. 12 C Witting, ‘The House that Dr Beever Built: Corrective Justice, Principle and the Law of Negligence’ (2008) 71 MLR 621, 629–30. 13 A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing, 2007). 14 ibid 28–30. 15 ibid 30 and 47. 16 ibid 45 (italics in original).

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‘rights are logically prior to wrongs and hence the rights base of negligence law is conceptually prior to the remainder of that law’.17 In chapter 8 of RLN, Beever considers the law relating to ‘Negligent Misrepresentation and Assumption of Responsibility’ and argues that misstatement cases are not properly considered part of the law of negligence. One reason for this is the negative argument that there is no protectable right to financial well-being— no ‘esoteric right not to be injured in reliance on negligently made statements’.18 Another is a positive argument about the reasoning adopted in cases like Hedley Byrne v Heller. Beever explains: In the relevant cases … the primary right in the claimant violated by the defendant must have been created by the defendant’s making of the statement. Unlike rights to the person and to property, therefore, the right to rely on a statement is derived from the defendant: it is a right somehow given to the claimant by the defendant. Now, at common law, rights are given to another only if it is reasonable to interpret, on an objective test, the giver as intending to furnish those rights … In other words, there must have been an assumption of responsibility.19 The basis of the defendant’s potential liability is that he consented to something that placed him under an obligation that he did not then meet.20

Beever concludes that the misstatement cases have been wrongly classified as negligence cases. They belong, rather, to what he terms the ‘law of consents’.21 Having drawn parallels throughout the chapter between the nature of the obligation created in misstatement cases and those in contract law, Beever also concludes that ‘the distinction between tort and contract is fundamentally unstable’.22 Beever’s overall thesis has been the subject of prior comment by the present writer.23 Problems include his unsuccessful invocation of a correlative schema of rights and duties and his failure to accept the normative dimension of judicial law making.24 With respect to his argument about the law relating to misstatements being part of the ‘law of consents’ rather than negligence, this can be given short shrift. There is no generally accepted category of law called the ‘law of consents’. Indeed, the cases to which Beever refers, many of which are discussed in this chapter, are pleaded in negligence, are analysed as involving each of the elements of negligence and are subject to all the limitations of the tort of negligence. To ascribe them to the law of negligence is, however, inconvenient for Beever because of his claim that duty of care cases should be determined on the basis of foreseeability alone.25 While this might work (after a fashion) in cases concerning 17

ibid 63. ibid 282. 19 ibid 284. 20 ibid 286. 21 ibid 314. 22 ibid 312. 23 Witting (n 12). 24 For similar points about rights analyses, see Barker (n 9) 171–73. See also Keating (n 7) 396–97 (tort’s forward-looking role). 25 Beever (n 13) 299. 18

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physical damage, Beever realises that it will not be sufficient to determine liability in misstatement cases. What remains, then, is Beever’s claim about the centrality of the ‘assumption of responsibility’ concept, which gives rise to a genuine issue of interpretation. This is a claim he makes in common with a number of other theorists and which will require full investigation later in this chapter. Another writer who is of the opinion that the law of misstatements does not belong to the law of negligence is Mark Gergen. In an article titled ‘Negligent Misrepresentation as Contract’,26 he takes a Beever-style argument one step further. He argues that the law on misstatements is best seen as a ‘contractual claim akin to promissory estoppel’.27 Obligations arise on the basis of ‘invited reliance’.28 The reason for distinguishing the remedy for breach from the general tort of negligence is as follows: Under the concept of invited reliance, liability for carelessly supplying false or misleading information that harms another requires a special sort of communicative relationship between the information supplier and the victim. By contrast, the modern negligence principle is a rule of prima facie liability for harm carelessly caused.29

Gergen also argues that misstatements must be seen as falling within the law of contract because obligations in that branch of law are voluntarily assumed (which is not the case in the law of torts)30 and that contract is the appropriate venue for claims in respect of financial losses (unlike negligence, which is focused upon ‘problems of accidental physical harm’).31 Gergen’s major claim can be rejected for exactly the same reasons as we rejected Beever’s claim that misstatements do not fall within the ordinary law of negligence. However, this chapter will need to examine the premises that underlie Gergen’s theory of misstatement law. The argument will be that they do not reflect the bulk of the English case law and that misstatements are best analysed according to the orthodox test for duty—the Caparo Industries plc v Dickman32 three-stage test.

III. Misstatements as a Unique Head of Negligence The next claim to be investigated in this chapter is one which does not dispute the fact that, broadly speaking, the law of negligent misstatements falls within the tort of negligence. The claim is that misstatements are different from ordinary negligence cases because they involve the use of words and perhaps because their 26

M Gergen, ‘Negligent Misrepresentation as Contract’ (2013) 101 California Law Review 953. ibid 953. 28 ibid 957. 29 ibid 959–60. 30 ibid 963. 31 ibid 987. As has been noted by other scholars, ‘on the rights-based view of private law it seems more logical to classify primary rights which arise out of contracts, undertakings and other consensual acts (including assumptions of responsibility) separately from primary rights which do not’: D Nolan and A Robertson, ‘Rights and Private Law’ in Nolan and Robertson (eds) (n 7) 29. 32 Caparo Industries plc v Dickman [1990] 2 AC 605. 27

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chief area of application is in cases involving purely financial losses. The main contention here is that the distinctiveness of negligent misstatement cases flows from adoption of the ‘assumption of responsibility’ test for duty of care—rather than the ordinary Caparo three-stage test. In The Idea of Private Law, Ernest Weinrib establishes a framework of corrective justice built upon a Kantian conception of rights and correlative duties and a focus not upon actual losses but upon normative losses. Normative losses are indicative of a shortfall in what the claimant should have ‘according to the norm governing the parties’ interaction’.33 ‘The plaintiff realizes a normative loss when the infringed right is within the scope of a duty violated; liability causes the reparation of this infringement’.34 The relevant norm is the ‘norm against negligent injuring’.35 The law of torts is said to protect rights in the sense that a tort involves a violation of the right of another, conceived of as a violation of the ‘freedom inherent in self-determining agency’.36 A right is a ‘power to treat something as subject to one’s will as a consequence of an antecedent connection that one’s will has established with the thing in question’37—whether that thing be one’s body or one’s property.38 One has a right to private property, for example, and a negligent interference with that right is an infringement of self-determining agency (viz, the right to do as one wants with his or her property) and grounds a cause of action in tort. One also has a right to protection of contractual expectations—a ‘contract transforms the promisor’s choice to perform the promised act into an external object that juridically belongs to the promisee’.39 The problem with redress for negligently caused financial loss is that, in most cases, the claimant cannot assert any right to economic advancement. In his book Corrective Justice, Weinrib asserts that only a subset of the financial loss cases can be treated as justified: Although the plaintiff has no right against the world for economic loss as such, in situations of justified detrimental reliance the plaintiff recovers for economic loss because of the special relationship that arose between the parties. The relationship is special in that, given the circumstances in which the misrepresentation took place, the defendant can reasonably be regarded as having invited the plaintiff to rely on it for a particular transaction or kind of transaction, and thus as having voluntarily assumed responsibility for the loss that results from the transaction. After leading the plaintiff reasonably to rely on the representation … the defendant cannot fairly disclaim responsibility for the consequences … [T]o the extent of the plaintiff ’s detrimental reliance, tort law views the plaintiff ’s pre-existing economic situation as an entitlement that runs against the defendant. The basis of the entitlement—the invitation to rely for a particular (kind of) purpose—also defines the scope of the duty correlative to it.40 33 34 35 36 37 38 39 40

EJ Weinrib, The Idea of Private Law (Cambridge, Mass, Harvard University Press, 1995) 114. ibid 125. ibid 115. ibid 122. EJ Weinrib, Corrective Justice (Oxford, Oxford University Press, 2012) 24. ibid 25. Weinrib (n 33) 139. Weinrib (n 37) 54–55.

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A number of objections can be taken to Weinrib’s conception, which cannot be fully explored in the course of this chapter. First, one might object to the underlying premise—that the law of torts is an instantiation of will-theory and that all that matters is the individual’s capacity for purposiveness. Cane points to tort as being a two-sided relation that is concerned not merely with the defendant’s capacity for purposiveness, but also with the claimant’s losses.41 This view, it is submitted, is much closer to reality. Second, the law of torts is concerned with the manner in which failures in care impact upon real lives, bodies, property and prospects. As Perry has argued, a major shortcoming in Weinrib’s theory is his inability to connect Kantian right to the actuality of injury and loss.42 Third, while Weinrib’s focus must necessarily be on ‘restoring the status quo ante’,43 the law of torts, when it compensates, looks both back in time and forward to take in to account the claimant’s ‘normal expectancies’ as Stapleton terms it.44 Finally, an analysis of the English cases reveals that invited reliance is not a prerequisite to a duty of care arising and that, as we shall see, the kind of ‘assumption of responsibility’ reasoning that Weinrib regards as crucial folds into the proximity approach to duty that he rejects.45 Reasoning very similar to Weinrib’s (although not grounded in a conception of corrective justice) is adopted by Robert Stevens in Torts and Rights. Stevens argues for a rights model of the law of torts in which, again, it is necessary to be able to identify a pre-existing right prior to actions alleged to infringe it.46 ‘The law of torts’, says Stevens, ‘is concerned with the secondary obligations generated by the infringement of primary rights’.47 He argues that the ‘common law’s starting point is that the infliction of economic loss does not per se infringe any right of the claimant’.48 Stevens thus explains the result in Caparo Industries plc v Dickman49 as follows: We do not have rights good against the rest of the world not to be given incorrect information, so as to avoid making losses from share dealing. We merely have a liberty to buy shares. Unless there was a reason arising from a relationship between the claimants and defendant why the claimants had a right against the defendant, for example a contract, no claim was possible.50

41 P Cane, Responsibility in Law and Morality (Oxford, Hart Publishing, 2002), 3–4, 49–50, 55–56 and 97–99. 42 SR Perry, ‘The Moral Foundations of Tort Law’ (1992) 77 Iowa Law Review 449, 478–78. Weinrib tries to answer this by stating that ‘Kantian right sees the factual in light of the normative’ etc: see Weinrib (n 33) 129. 43 Weinrib (n 33) 132. 44 J Stapleton, ‘The Normal Expectancies Measure in Tort Damages’ (1997) 113 LQR 257. 45 Weinrib (n 37) ch 2. 46 R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007) 2. For criticism, see J Murphy, ‘Rights, Reductionism and Tort Law’ (2008) 28 OJLS 393, 397. 47 Stevens (n 46) 2. But see Keating (n 7) ch 13 for contrary argument. 48 Stevens (n 46) 21. 49 Caparo (n 32). 50 Stevens (n 46) 24.

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But Stevens recognises the assumption of responsibility as providing a legitimate basis for creating a right,51 in a manner not dissimilar to Weinrib. He also makes a claim, which will be examined in the course of this chapter, that the ‘Assumption of responsibility does not fit within the “three-stage” test for a duty of care’52 and exists as a separate head of liability. He further asserts that the assumption of responsibility concept is ‘indispensable’ to understanding the decision of the House of Lords in Williams v Natural Life Health Foods Ltd,53 which dealt with the question whether the controlling director-shareholder of a small company could be held personally liable for statements issued by the company itself. Aside from the usual problems with rights theories of the law of torts, there are a number of shortcoming in Stevens’ account of misstatements cases. One set of problems, highlighted by Murphy, relates to the attempt to justify a free-standing head of liability by selective analogy with equity and bailment54—while ignoring the fact that contract law refuses redress for gratuitous undertakings.55 Although an explanation for this analogy might be possible,56 Stevens does not provide sufficient reasons for adopting it. Another problem of his account, to be dealt with below, relates to the Williams case, which Stevens finds so compelling. This chapter argues that the House of Lords’ use of the assumption of responsibility concept was highly contentious, ignored the established test for duty in misstatement cases, and was used as a device in order to obtain a determination of no liability.

IV. Assumption of Responsibility Having reviewed a number of claims made about negligent misstatements in the literature, this chapter now begins an assessment of the remaining (and less extreme) claims by examining the main cases in which the assumption of responsibility concept was adopted. It argues that it is rightly considered as a subset of the ordinary test for proximity—meaning that misstatement cases are governed by the orthodox three-stage test for duty.

A. Hedley Byrne v Heller As Mitchell has explained,57 the concept of an ‘assumption of responsibility’ (or ‘voluntary undertaking’) is not new. It has a long-ish pedigree in actions on the 51

ibid 33–34. ibid 35. 53 Williams (n 3) considered in Stevens (n 46) 36. 54 Stevens (n 46) 33ff. 55 Murphy (n 46) 403. 56 As to which, see discussion under the next sub-heading. 57 P Mitchell, ‘Hedley Byrne & Co Ltd v Heller & Partners Ltd (1963)’ in C Mitchell and P Mitchell (eds), Landmark Cases in the Law of Tort (Oxford, Hart Publishing, 2010) ch 7. 52

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case involving warranties, bailments and undertakings arising from common callings. However, we must be careful here to distinguish between this juridical concept and the former action of assumpsit which relied upon it. Mitchell argues that ‘assumpsit duties[, which] arose where one party gratuitously undertook to act for the benefit of another and carelessly misperformed[,] do not fit neatly into tort, contract or any other modern legal category’.58 The first point to note is that assumpsit itself, as a form of action requiring a request to do something and specific pleading of the circumstances in which it came about,59 was swept away in the second half of the 19th century. The conventional view now is that the law of torts consists in ‘the action of trespass and the action of case minus assumpsit’.60 The second point to note, then, is that one has to be very wary of Mitchell’s assertion that ‘Hedley Byrne … is best understood as a reassertion of [this] very old idea’ of an assumpsit duty and that the seminal negligent misstatement case is ‘the articulation of a principle that would have been obvious to a fourteenth century lawyer’.61 As will now be demonstrated, their Lordships in Hedley Byrne considered voluntary undertakings (not assumpsit as such) to be significant within a conception of proximity used to ground an obligation on the part of professionals and other advisors who hold themselves out as having certain skills and competence and as being able to meet certain minimum standards of care. In Hedley Byrne v Heller, there was majority support for the propositions that ‘irrespective of any contractual or fiduciary relationship and irrespective of any direct dealing, a duty may be owed by one to another’62 and that a duty of care could be said to arise where there was a special relationship between the parties. A special relationship, in this context, would arise upon the basis of an assumption or undertaking of responsibility by the defendant in making the statement subsequently relied upon.63 Reliance would be reasonable in circumstances where, for example, the maker of the statement was possessed of a special skill64 and where the statement was made on a serious (eg business) occasion, rather than on a social occasion.65 Each of their Lordships agreed that there could be no liability where the statement maker disclaimed responsibility for the accuracy of its contents.66 Around this core of principle, there were other expressions of opinion about the appropriate ambit of liability.

58

Mitchell (n 57) 173. D Ibbetson, A Historical Introduction to the Law of Obligations (Oxford, Oxford University Press, 1999) 133. 60 E Descheemaeker, The Division of Wrongs: A Historical Comparative Study (Oxford, Oxford University Press, 2009) 194. 61 Mitchell (n 57) 173. 62 Hedley Byrne (n 2) 496. 63 ibid 483 (Lord Reid), 497, 502–03 (Lord Morris) and 529 (Lord Devlin). 64 ibid 502 (Lord Morris), 510 (Lord Hodson) and 538 (Lord Pearce). 65 ibid 482–83 (Lord Reid), 494–95 (Lord Morris), 529 (Lord Devlin) and 539 (Lord Pearce). 66 ibid 492 (Lord Reid), 504 (Lord Morris), 511 (Lord Hodson), 538 (Lord Devlin) and 539–40 (Lord Pearce). But note Smith v Eric S Bush [1990] 1 AC 831, discussed below in text at n 115. 59

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It is important to understand how their Lordships in Hedley Byrne conceptualised the ‘assumption of responsibility’. Although opposing accounts exist,67 it is submitted that the House of Lords (1) inclined towards the view that any assumption of responsibility was to be discerned from an examination of the facts and would be imputed to the defendant68 and (2) was adamant that an ‘assumption of responsibility’ was a kind of proximity.69 This latter point deserves emphasis and can be established by reference to the speeches of four of their Lordships. Lord Reid cited a passage from Sir Roundell Palmer in Peek v Gurney concerned with the issue whether ‘there was such a proximate relation between [the plaintiff] and the person making the representation’70 and stated that, with respect to threeparty misstatement cases, he did not ‘intend to decide anything about the degree of proximity necessary to establish a relationship giving rise to a duty of care’.71 The point is, of course, that Lord Reid believed that the duty of care in misstatement cases would be constructed upon the presence of proximity between the parties. The other Lordships were even clearer about this. Lord Hodson observed that ‘proximity is more difficult to establish where words are concerned than in the case of other activities’ but held that the matter simply went to the ‘difficulty of proof rather than principle’.72 And Lord Pearce held that persons ‘holding themselves out in a calling or situation or profession [who] take on a task … are in particularly close proximity to those who, as they know, are relying on their skill and care although the proximity is not contractual’.73 Finally, we turn to Lord Devlin, whose speech in the Hedley Byrne case, although no model of clarity, has been greatly misunderstood by courts and scholars. His Lordship stated that: [T]here is no general duty not to make careless statements. No one challenges that … Nor indeed is there any general duty to be careful in action. The duty is limited to those who can establish some relationship of proximity such as was found to exist in Donoghue v Stevenson. A plaintiff cannot, therefore, recover for financial loss caused by a careless statement unless he can show that the maker of the statement was under a special duty to be careful.74

This passage should be read bearing in mind that, in his Lordship’s view, what Lord Atkin had done in Donoghue v Stevenson was ‘to use his general conception 67

See, eg, Mitchell (n 57) 176. Hedley Byrne (n 2) 483 and 492 (Lord Reid stating that the assumption of responsibility is derived from express statement or by implication from the circumstances), 509–11 and 513 (Lord Hodson speaking of ‘circumstances in which the law imposes a duty to be careful’), 523 and 529 (Lord Devlin speaking of duties being imposed, although his Lordship is inconsistent when he says that ‘It is a responsibility that is voluntarily accepted or undertaken’) and 539 (Lord Pearce speaking of circumstances requiring that a duty be imposed). 69 An assumption also adopted in K Barker, ‘Unreliable Assumptions in the Modern Law of Negligence’ (1993) 109 LQR 461, 483. 70 Hedley Byrne (n 2) citing Peek v Gurney (1871) LR 13 Eq 79, 97. 71 Hedley Byrne (n 2) 488. 72 ibid 510. 73 ibid 538. 74 ibid 514–15. 68

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to open up a category of cases giving rise to a special duty’.75 Lord Devlin was thus asserting that, through a finding of an assumption of responsibility, a similar special duty could be found in a misstatement case.76 His Lordship later considered whether the appellants had ‘tried to press Donoghue v Stevenson too hard’. Lord Devlin opined that their Lordships ‘asked whether the principle of proximity should not apply as well to words as to deed. I think it should…’.77 In cases where an assumption of responsibility was found, this was rightly regarded ‘as an application of the general conception of proximity’.78 He went on to say: Cases may arise in the future in which a new and wider proposition, quite independent of any notion of contract, will be needed. There may, for example, be cases in which a statement is not supplied for the use of any particular person … and it will then be necessary to return to the general conception of proximity and to see whether there can be evolved from it, as was done in Donoghue v Stevenson, a specific proposition to fit the case … English law is wide enough to embrace any new category or proposition that exemplifies the principle of proximity.79

His Lordship was, in this passage, rejecting the idea that duties of care in negligent misstatement cases could arise only where the facts are ‘equivalent to contract’. Although such equivalence makes for an incontrovertible case in favour of duty, this is not a necessary requirement. The law could be expected to develop regarding care in word as it had done so as regards care in deed. One might conclude examination of the Hedley Byrne case by noting that there was no statement anywhere within it that was inconsistent with the highlighted propositions. The result must be that any scholar attempting, as the corrective justice and rights theorists have attempted, to carve out a special place for the law of misstatements—either as a separate branch of the law, as part of the law of contract, or as a separate type of negligence liability—cannot use Hedley Byrne as their anchor. Stephen Perry was right to conclude that the misstatement cases do not collapse the distinction between tort and contract, given the willingness of courts in tort to award damages for losses of opportunity to make a profit or otherwise obtain a benefit.80 Perry was also correct to write that ‘there is no basis for thinking that negligent misrepresentation cases should be treated as distinct from all other negligence cases, including those that involve an undertaking to perform a service other than conveying information or advice’.81 He believes that there is 75

ibid 524. ibid 525. 77 ibid 525. 78 ibid 530. 79 ibid 530–31. 80 SR Perry, ‘Protected Interests and Undertakings in the Law of Negligence’ (1992) 42 University of Toronto LJ 247, 278–79. 81 ibid 276. Although Australian law is reviewed elsewhere in this volume, one should also note the assertive views of the High Court of Australia in San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (1986) 162 CLR 340, 354 (Gibbs CJ, Mason, Wilson and Dawson JJ). 76

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no paradigm shift from ordinary physical damage cases to cases of misstatements causative of financial loss: Many Donoghue v Stevenson-type cases involve, as part of the causal chain leading to damage, foreseeable reliance by the plaintiff on a belief that the defendant will not act in such a way as to subject the plaintiff to an unreasonable risk of harm to person or property. This is often true of products liability cases, for example, including, presumably, Donoghue v Stevenson itself: the plaintiff believes that the defendant will manufacture a reasonably safe product and relies on him or her to do so, thereby omitting to take precautionary measures … that he would otherwise have adopted.82

A review of negligence cases prior to Hedley Byrne reveals that the courts had regularly awarded damages for misstatements causative of physical loss.83 The real limitation in English case law lay in the point that there could be no liability for misstatements causative of purely financial loss except where the requirements of deceit were satisfied, which, following Derry v Peek,84 included the need for proof of fraud. The limitation in the extent of liability related to the form of damage rather than to the means of causation. This is somewhat ironic, given that the focus of discussion in Hedley Byrne lay in the significance of the distinction between acts and words rather than in the type of loss at issue (although there was, to be sure, some comment about it).85

B. Williams v Natural Life Health Foods We now come to a more modern authority in which negligent misstatements were treated as a special category of case, different and apart from ordinary doctrine. In Williams v Natural Life Health Foods Ltd,86 it is clear that the House of Lords used the assumption of responsibility concept in order to deny or drastically reduce the scope of a small company director’s liability for misstatements. In the Williams case, franchisees sued a franchisor company for misleading projections about the viability of a health foods store. The franchisor company proved to be insolvent and the claimants joined the ‘managing director and principal shareholder’, Mr Mistlin, as a defendant. The managing director had ‘played a prominent part in the production of the projections’, but the House of Lords believed him

82 Perry (n 80) 288. See also Webster v Liddington [2014] EWCA Civ 560 (clinicians undertaking skin rejuvenation treatment held to have adopted misstatements used in manufacturers’ brochures). 83 See especially Little v The Port Talbot Company (The Apollo) [1891] AC 499; Clay v AJ Crump and Sons Ltd [1964] 1 QB 533. 84 Derry v Peek (1889) 14 App Cas 337. 85 See Hedley Byrne (n 2) 482–83 (Lord Reid), 494–96 (Lord Morris), 508, 510 (Lord Hodson), 516–17, 525 (Lord Devlin) and 534 (Lord Pearce). For an intellectual history of the law relating to financial loss, see J Gordley, Foundations of Private Law: Property, Tort, Contract, Unjust Enrichment (Oxford, Oxford University Press, 2006) ch 12. Gordley points out that English courts really only began openly to discuss the issue of financial loss after 1922: ibid 275. But this does mean that, by the time that Hedley Byrne was decided in 1963, the significance of the type of loss would have been apparent. 86 Williams (n 3).

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to have had no ‘material pre-contractual dealings’ with the claimants.87 It held that the ‘extended Hedley Byrne’ principle was ‘the rationalisation or technique adopted’ in cases of the negligent provision of a service giving rise to financial losses.88 This principle was held to turn upon proof of a special relationship between the parties ‘giving rise to an assumption of responsibility’,89 which would be present where there are positive exchanges between the parties by which the director indicated that he or she accepted personal responsibility for any failure in care.90 Evidence of this could be found in such things as a letter written by a director to a customer, enclosing an invoice, such that the ‘clear impression’ was created ‘that he was personally answerable for’ services.91 This approach was said to be necessary as a protection of the separation in law between company and director.92 Once an assumption of responsibility was proved, it would be necessary for the claimant to establish that he or she had relied upon such in order to prove causation of damage.93 On the facts, there was no liability. In the absence of personal dealings between the managing director and the claimants, ‘There were no exchanges or conduct crossing the line which could have conveyed to the plaintiffs that Mr Mistlin was willing to assume personal responsibility to them’.94 The present writer has argued95 that the reasoning in the Williams case, evidenced especially in the adoption of the ‘assumption of responsibility’ test for duty, was very much influenced by the nature of the defendant as the sole directorshareholder in a small company. Although the claimant sought to make Mr Mistlin liable in his capacity as a director of the company, it would appear that the House of Lords was very concerned by the potential consequences—for the corporate form—of such a ruling. In these circumstances, the House found it expedient to employ assumption of responsibility reasoning, which might be seen to create a higher threshold to liability than one based on simple proximity. The assertion that the House consciously deviated from the application of the standard test for duty of care in order to protect the director of the small company seems a reasonable conclusion to draw when one considers that the three-stage test, as set out in Caparo Industries plc v Dickman,96 was entirely apposite given that it concerned a negligent misstatement causative of financial loss. No reason was given for the failure to apply this test.

87 ibid 832. Against C Witting, ‘The Small Company : Directors’ Status and Liability in Negligence’ (2013) 24 Kings Law Journal 343, 357. 88 Williams (n 3) 834. 89 ibid 838. 90 ibid 835. 91 ibid 836. 92 ibid 835. 93 ibid 834 and 836. 94 ibid 838. 95 Witting (n 87). 96 Caparo (n 32).

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The result of the Williams case is that it is ‘almost impossible to bring a claim against directors personally’ for negligent misstatements.97 Yet its reasoning is vulnerable on a number of grounds. In ordinary parlance, an ‘assumption of responsibility’ would seem most naturally to refer to a responsibility that is subjectively assumed—that is, where the statement maker intends as a factual matter to assume responsibility for the task being undertaken.98 There can be no difficulty with the idea that onerous legal obligations should be acknowledged in a person who has assumed responsibility for the interests of the claimant. The subjective assumption of responsibility is normatively significant and capable of grounding a legally enforced duty of care in tort.99 In such cases, it appears correct to say that ‘there should be no need to embark upon any further inquiry whether it is “fair, just and reasonable” to impose [a duty of care] for economic loss’.100 The problem is that such usage is the exception rather than the rule. Virtually all of the cases in which advice or information is offered in the course of a professional relationship and within the purposes contemplated by the parties can be characterised as involving a subjective assumption of responsibility for the task in question—but less frequently for the implications of negligence.101 Under Lord Browne-Wilkinson’s conception of the assumption of responsibility set out in White v Jones,102 this would suffice to ground a duty of care. The normatively salient aspect of the defendant’s actions is that he or she makes a choice to answer an inquiry or to take action which is likely to affect another’s interests.103 The more difficult use of the assumption of responsibility test arises in cases where the defendant is not in the business of supplying statements of the kind in question, where the parties have not concluded a contract or entered into a formal relationship or where the parties have not directly dealt with each other at all. In such cases, it would seem futile to employ the assumption of responsibility test. This explains why, in Customs and Excise Commissioners v Barclays Bank plc, Lord Bingham stated that ‘an assumption of responsibility [is] a sufficient but not a necessary condition of liability’ in negligence.104 Various cases indicate that the assumption of responsibility becomes, in such circumstances, an issue of the ‘exchanges or conduct crossing the line’ between the parties and other objective

97 WY Wan, ‘Reconsidering Personal Liability of Directors and Senior Managers for Misstatements and Non-Disclosure to the Securities Market’ (2009) 9 Journal of Corporate Law Studies 235, 243. 98 Merrett v Babb [2001] QB 1174, 1193 (May LJ). Cf Barker (n 69) 464 (discussing ‘promises’ made by D, these not providing ‘an adequate explanation of the cases’). The present writer is of the view that any kind of objective test (say for intention to assume responsibility) is unworkable (as Barker proves to be the case in his paper) and thus speaks only of subjective assumptions of responsibility as a meaningful concept. 99 Perry (n 80) 283. 100 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 181 (Lord Goff). 101 Smith (n 66) 862 (Lord Griffiths). 102 White v Jones [1995] 2 AC 207, 273–74. 103 ibid 272–73. See also Barker (n 69) 469–74. 104 Barclays Bank (n 4) 198.

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manifestations of proximity105 so that ‘the Caparo strand and the [assumption of responsibility] strand in reality merge’.106

C. More Recent Authority The Barclays Bank case was decided after the Williams case. It returns to the traditional understanding by defining the ‘assumption of responsibility’ concept as a type of proximity found within the three-stage test for duty of care.107 Lord Bingham noted that the assumption of responsibility ‘test’ is to be applied objectively.108 Moreover, ‘the further the test is removed from the actions and intentions of the actual defendant, and the more notional the assumption of responsibility becomes, the less difference there is between this test and the threefold test’.109 Lord Hoffmann went further in conflating the tests, stating that the purpose of the objective assumption of responsibility test ‘is to establish whether there was … the necessary relationship (or “proximity”) between the parties’.110 Lord Walker spoke similarly, saying that in financial loss cases ‘the voluntary assumption of responsibility towards others, judged objectively, may provide the necessary proximity’.111 The latter two of their Lordships clearly envisaged that the concept of proximity encompassed the objective version of the assumption of responsibility test. A more recent case in which the assumption of responsibility concept was explained in terms of an objective test similar to that of proximity is Chandler v Cape Industries.112 This was a case concerned with the issue whether a parent company owed a duty of care to its subsidiary’s employees in circumstances where the employees were exposed to asbestos and thereafter suffered from asbestosrelated diseases. Its significance for our purposes is that it involved the question of whether to make a shareholder—the parent company—liable for the tort of its subsidiary. It presents the modern ‘take’ on use of assumption of responsibilitytype reasoning in that context. In the course of holding that such a duty of care was owed, Arden LJ observed that cases employing the ‘assumption of responsibility’ concept were more accurately explained as concerned with ‘attachment’ of responsibility by the courts.113 This is on the basis, no doubt correct, that ‘Whether a party has assumed responsibility is a question of law’.114 Having said as much, her Ladyship analysed the facts of the case so as to identify what were, essentially, the factual features linking the parties one to the other. 105 Williams (n 3) 838 (Lord Steyn). See also: Barclays Bank (n 4) [144] (Lord Bingham); Phelps v Hillingdon LBC [2001] 2 AC 619, 654 (Lord Slynn); Henderson v Merrett (n 100) 181 (Lord Goff); Caparo (n 32) 637 (Lord Oliver); So v HSBC Bank plc [2009] 1 CLC 503, [44]. 106 Merrett (n 98) [41]. 107 See Barclays Bank (n 4) [5] (Lord Bingham), [35] (Lord Hoffmann) and [73] (Lord Walker). 108 ibid [5]. 109 ibid [5]. 110 ibid [35]. 111 ibid [73]. 112 Chandler v Cape plc [2012] EWCA Civ 525; [2012] 1 WLR 3111. 113 ibid [64]. 114 ibid [64].

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D. Further Proof of Argument In Smith v Eric S Bush,115 the House of Lords demonstrated that, at the end of the day, liability in tort is imposed, not assumed.116 A duty of care was imposed upon a professional valuer despite a clear attempt to exclude liability and the decision reflects the minimum basis upon which liability for a negligent misstatement may be imposed—one which requires no assumption of responsibility.117 Their Lordships explained, yet again, that the basis for the imposition of a duty of care was the proximity that arose between the parties. Both Lord Griffiths118 and Lord Jauncey were explicit about this, the latter stating that ‘The question must always be whether the particular facts disclose that there is a sufficiently proximate relationship between the provider of information and the person who has acted on that information to his detriment’.119 This decision is consistent with the idea that the law of torts is concerned with the creation of minimum standards of conduct, so as to ensure that persons can interact with each other with a degree of certainty. Duties of care justifiably are imposed where professionals, experts and others (such as local authorities) engage in regular patterns of conduct (including the provision of advice and information) upon which others come to rely. Having analysed the assumption of responsibility concept, the present writer has been gratified to find his major conclusions affirmed in the meticulous research undertaken by Robertson and Wang for their chapter in this volume.120 Bearing in mind a slight difference in the focus of each of the chapters,121 the present writer agrees with Robertson and Wang’s conclusions that ‘The assumption of responsibility is not … a distinctive category of obligation but a loosely defined subset of proximity’ and that the ‘assumption of responsibility is not a distinctive category of obligation, but simply a particular manifestation of the neighbour principle’.122

115

Smith (n 66). There are numerous other statements to this effect. See, eg, Phelps (n 105) 791 (Lord Slynn); Caparo (n 32) 628 (Lord Roskill); Merrett (n 98) [1193] (May LJ). See also K Barker, ‘Wielding Occam’s Razor: Pruning Strategies for Economic Loss’ (2006) 26 OJLS 289, 298; Stephen Todd, ‘Liability of Agents in Tort’ (1998) 14 Professional Negligence 136, 141. 117 Barker (n 116) 298. 118 Smith (n 66) 865. 119 ibid 871. 120 See Chapter 3. 121 Whereas Robertson and Wang deal with physical loss cases, ‘extended Hedley Byrne’ cases and non-delegable duties, this chapter does not deal with any of these on the basis that they are subject to different rules. 122 See the penultimate and final paragraphs of Chapter 3. The present writer does, however, reject Robertson and Wang’s full definition of proximity as ‘essentially concerned with the question whether the claimant was so closely and directly affected by the defendant’s conduct that the defendant ought to have had the claimant in mind when considering how to act’: ibid text to n 118. Proximity is most useful when defined as an ‘is’ upon which an ‘ought’ is founded as a matter of policy: C Witting, ‘The Three-Stage Test Abandoned in Australia—Or Not?’ (2002) 118 LQR 214. 116

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V. The Place of Hedley Byrne within Negligence The foregoing explanation of misstatements causative of financial loss is consistent with the view that the law of negligence, since the time of Donoghue v Stevenson,123 has been a unified whole. The accepted elements of negligence apply to cases of financial loss, just as they apply to cases of physical loss, psychiatric illness and omissions. In asserting this view, this chapter is entirely consistent with what the textbooks on the subject assume. The critical element of this chapter behind us, we must now turn to a more constructive formulation of the place of the duty of care in the resolution of cases of misstatements causative of financial loss. The present writer has argued previously that the elements of the three-stage test for duty, comprising foreseeability, proximity and policy, serve certain functional purposes in the recognition of legal relationships between parties in negligence cases.124 These must be briefly reviewed before returning the focus to an explanation of proximity in misstatement cases. The test for reasonable foreseeability is objective in nature; it is concerned with what the reasonable person in the position of the defendant reasonably could have foreseen prior to the injurious interaction between the parties. The threshold of foreseeability is not particularly high, envisaging real possibilities rather than probabilities. In Grieves v FT Everard & Sons, Lord Hoffmann stated that the ‘answers to a test of foreseeability will vary according to, first, the precise description of what should have been foreseen and, secondly, the degree of probability which makes it foreseeable’.125 Being about future possible consequences of failures in care, foreseeability is dependent upon the ‘closeness’ of the parties to each other.126 Thus, while foreseeability of directly caused injury is often quite straightforward to establish, foreseeability of indirectly caused injury might be more difficult to establish. Proximity is a concept that is concerned with the factual relationship between the parties. Logically, it is concerned with the existence of factual links between the parties prior to the failure in care.127 These factual links signify the potential for the defendant to cause harm to the claimant (and to persons similarly placed). These factual links operate, then, as pathways to harm. It is these pathways that ground the obligation to take care.128 In cases of proximity based on physical propinquity, 123

Donoghue v Stevenson [1932] AC 562. See generally C Witting, Street on Torts, 14th edn (Oxford, Oxford University Press, 2015) ch 2 and references cited below. 125 Grieves v FT Everard & Sons [2008] 1 AC 281 [29]. 126 Donoghue v Stevenson (n 123) 580. 127 Note, however, that it has been pointed out that, in the secondary psychiatric illness cases, courts have purported to examine issues of proximity at a point in time after the relevant failure in care: D Nolan, ‘Deconstructing the Duty of Care’ (2013) 129 LQR 559, 567. In such cases, it would appear that proximity can arise only through the relationships between the parties—which exist prior to the failure in care. 128 Witting (n 12); C Witting ‘Tort Law, Policy and the High Court of Australia’ (2007) 31 Melbourne University Law Review 569. 124

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duties of care materialise and dissolve as persons ‘pass each other by’. In misstatement cases, financial loss typically arises by way of the receipt of statements and actions taken pursuant to them (that is, by way of ‘reactions’ to the generation of advice or information) rather than through more direct causal mechanisms.129 Proximity between advisors and recipients exists at least as long as the underlying professional relationships do. The policy limb of the duty of care inquiry is a necessary part of the inquiry, but (applied correctly) it does not give rise to especial theoretical concerns. The judicial function has a normative aspect to it; it is concerned with the imposition of norms of conduct for the solution, inter alia, of coordination problems.130 The court, being more than a mere fact-finding tribunal, must apply itself to the question whether to impose a duty of care. This is not to say that the discretion inherent within it should overwhelm the process of determining the duty of care. The fair, just and reasonable inquiry should have its main impact upon the development of the duty concept—taking it into new areas or withdrawing it from its current area of operation. Policy should not be used to re-make the law on duty in every single case. The present writer’s general conception of the duty of care having been explained, the question arises as to what might be considered genuine proximity factors in cases of negligent misstatements causative of financial loss. Recognising proximity as concerned with establishing pathways to harm as between parties to an injurious interaction assists in identifying whether factors frequently referred to are actually relevant to establishing proximity or not.131 A very strong factor is the presence of a ‘special relationship’ between the parties, especially that arising between advisor and client. Such a relationship creates judicially recognised expectations that minimum standards of conduct will be observed. A related factor is some special skill or competence in the statement maker, greater than any possessed by the claimant, which again creates an expectation in the recipient of the statement (not necessarily a client) that minimum standards will apply in the creation and dissemination of advice or information.132 In the absence of such special skill or competence, a holding-out of skill or competence133 would have the same effect of creating an expectation in the recipient that minimum standards will be adhered to—even though the defendant

129 J Stapleton, ‘Comparative Economic Loss: Lessons from Case-Law-Focused “Middle Theory”’ (2002) 50 University of California Los Angles Law Review 531, 541. 130 See Witting (n 12) 630; SA Smith ‘The Normativity of Private Law’ (2011) 31 OJLS 215; SA Smith, ‘Duties, Liabilities and Damages’ (2012) 125 Harvard Law Review 1727, 1732. 131 The result, as will be seen, looks somewhat different from the list recognised in A Robertson, ‘Policy-based Reasoning in Duty of Care Cases’ (2012) 32 Legal Studies 1, 5. The different conception of what constitutes a proximity factor stems from Robertson’s characterisation of proximity as concerned with ‘interpersonal justice arising from the relations between the parties’: ibid. 132 See, eg, Henderson v Merrett (n 100) 180 (Lord Goff); Smith (n 66) 859 and 865–66 (Lord Griffiths). 133 Hedley Byrne (n 2) 505 (Lord Hodson) and 538 (Lord Pearce).

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might not be capable of reaching those standards.134 However, the holding-out of skill or competence might be sufficient to create a duty of care between the parties on the basis that it would be unfair for the defendant now to deny the ability to reach minimum standards of conduct. In the absence of defendant skill or competence, or a holding-out of such, proximity might arise in a number of ways. The first would be where the defendant induces the claimant to act in reliance upon a statement. An inducement is designed strongly to influence the choice of the statement recipient, usually to enter into a transaction with the statement maker or with some specified third party.135 The second way in which proximity might arise is through a request by the claimant for advice or information.136 The request joins the parties together in a purposive way, alerting the statement maker to the requirements of the recipient. The more formal the occasion on which a request is made, and the more definite the terms in which it is made, the more likely that the court will regard any response as giving rise to proximity in the recipient.137 A written request will be of greater weight than an oral request,138 but this is not to deny that oral requests can give rise to liability. The more often the request is repeated, the greater its importance might become in the subsequent conduct of the defendant.139 And a final way in which proximity might arise in this situation is where the defendant is active in showing the claimant a document in circumstances where it is understood by the defendant that the claimant has a particular purpose or interest in seeing it.140 In three-party cases, requests for advice or information are less prominent. Instead, the courts have insisted that a statement be supplied for specified purposes and that the recipient rely upon the statement for those specified purposes.141 Especially where advice or information is available to a wide range of third parties, the purposes for which it is drawn up and supplied assume crucial importance.142 The purposes for which a recipient uses advice or information need not be exactly the same as those intended by the statement maker, but must be sufficiently congruent.143 The reasons for concluding that supply for known 134 This is not atypical of the law of negligence: AM Honoré, ‘Responsibility and Luck: The Moral Basis of Strict Liability’ (1988) 104 LQR 530 (discussing the position of the ‘short-comer’). 135 Typically the statement maker will have a financial connection with the third party, such as a contract of retainer (Morgan Crucible Co plc v Hill Samuel & Co Ltd [1991] 1 QB 801, 820) or a holding of shares. 136 Spring v Guardian Assurance plc [1995] 2 AC 296, 345 (Lord Woolf). 137 Hedley Byrne (n 2) 495 (Lord Morris). 138 Howard Marine & Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] 1 QB 574, 592 (Lord Denning MR). 139 ibid 601 (Shaw LJ). 140 See Smith (n 66) 845 (Lord Templeman), citing Candler v Crane, Christmas & Co [1951] 2 KB 164, 179 (Denning LJ). 141 The purpose of a statement might be discerned by its nature, contents and commercial practice: see Witting (n 1) 194–96. 142 Caparo (n 32) 621. 143 Western Trust & Savings Ltd v Strutt & Parker [1999] PNLR 154.

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purposes is a proximity factor were well stated in Caparo Industries plc v Dickman by Lord Bridge. His Lordship noted that where there is a clear purpose known to the parties: [T]he defendant could clearly be expected … specifically to anticipate that the plaintiff would rely on the advice or information given by the defendant for the very purpose for which he did in the event rely on it. So the plaintiff … would in that situation reasonably suppose that he was entitled to rely on the advice or information communicated to him for the very purpose for which he required it.144

Other factors sometimes described as proximity factors would not qualify under the conception of proximity adopted here. These include mere knowledge on the part of the defendant that the claimant, or the limited class of persons to which he or she belongs, is likely to act upon a statement—perhaps for a specified purpose.145 This knowledge does not itself create a pathway to harm between the parties, although it might be seen as a secondary feature of the relationship which justifies the expectation that care will be taken in the drawing up and dissemination of advice or information. Similarly, the formality of the occasion in question does not create a pathway to harm, although, again, it would be an important secondary feature justifying an expectation that care would be taken. No such expectation would be expected to arise in the case, for example, of discussion at a dinner party146—especially if the guests are all a little the worse for wear. Finally, vulnerability taken in isolation is not a proximity factor.147 Thus, the mere fact that the claimant is exceptionally gullible, for example, cannot ground a duty of care. The claimant’s vulnerability is relevant to the recognition of a duty of care only in so far as it results from recognised pathways to harm between the parties. As is implicit in the foregoing, the relevant kind of vulnerability arises from an interaction with the statement maker or others who have adopted and used the misstatement. On a related matter, the mere fact of reliance cannot be considered to create the necessary proximity. In accordance with this view, Lord Steyn in Williams v Natural Life Health Foods Ltd treated reliance as going not to the establishment of a duty but to causation of loss: ‘If reliance is not proved, it is not established that the assumption of responsibility had causative effect’.148 144

Caparo (n 32) 621. ibid 621 (Lord Bridge); Smith (n 66) 844, 846 (Lord Templeman), 862, 865 (Lord Griffiths) and 870 (Lord Jauncey). In a paper preceding development of his current theory of proximity, the present writer took the view that actual knowledge in this sense was a key proximity factor: see C Witting, ‘Justifying Liability to Third Parties for Negligent Misstatements’ (2000) 20 OJLS 615. While this position does reflect the law, it has been criticised: Perry (n 80) 299–300. Under the approach now being adopted, the present writer argues, as per the text, that knowledge of likely reliance (being defendant centred) can be no more than a secondary factor strengthening a case that a duty ought to be imposed. 146 Hedley Byrne (n 2) 482 (Lord Reid); Mutual Life & Citizens’ Assurance Co Ltd v Evatt [1971] AC 793, 810–11 (Lord Reid and Lord Morris). 147 cf Stapleton (n 129) 554ff; J Stapleton, ‘The Golden Thread at the Heart of Tort Law : Protection of the Vulnerable’ (2003) 24 Australian Bar Review 41; A Robertson, ‘On the Function of the Law of Negligence’ (2013) 33 OJLS 31, 34. 148 Williams (n 3) 836. See also P Cane, ‘The Metes and Bounds of Hedley Byrne’ (1981) 55 Australian Law Journal 862, 863; Barker (n 69) 481; Stapleton (n 129) 541. 145

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Reliance is relevant only once pathways to harm have arisen between the parties— and when the law recognises (by their presence) a duty of care. Logically, duty precedes reliance.

VI. Conclusions This chapter has demonstrated that the law of negligent misstatements causative of financial loss has been poorly theorised by the corrective justice and rights theorists. They have failed to understand the way in which the assumption of responsibility concept was used in the Hedley Byrne case.149 The four of their Lordships who commented upon the relationship between that concept and the concept of proximity arising from Donoghue v Stevenson quite clearly and unequivocally saw the former as a subset of the latter. This was also the clear view of the House of Lords in the Barclays Bank case. The chapter has also explained that the reason for which the House of Lords in Williams v Natural Life Health Food Ltd manipulated the assumption of responsibility had to do with the perceived need for a higher hurdle to liability in cases where it is alleged that a small company directorshareholder has been responsible for a negligent misstatement. The chapter has also invoked the present writer’s conception of proximity (being concerned with the factual links between the parties which create pathways to harm) in order to identify the most important proximity factors that have been used to ground duties of care in cases of negligent misstatements causative of financial loss. These factors were explained to include advisor–client relationships, statement-maker skills or competences (or the holding-out of such), inducements to act, requests for advice or information, and the active dissemination of documents in circumstances where defendants know that claimants have particular purposes or interests in seeing them. The chapter also explained why it is incorrect to treat as proximity factors such things as knowledge of the likelihood of reliance, the formality of occasions on which advice is given, and reliance upon statements.

149 Although Lord Devlin’s statement that responsibility is ‘voluntarily accepted or undertaken’ was a genuine source of confusion: Hedley Byrne (n 2) 529.

10 Negligent Misstatement in the United States JAY M FEINMAN

I. Introduction In 1964 the House of Lords in Hedley Byrne & Co Ltd v Heller & Partners Ltd1 expanded liability for negligent misstatement by charting a middle path. The Law Lords rejected a narrow application of Derry v Peek under which the action for deceit required intentional fraud.2 They also rejected a broad application of the general negligence principle of Donoghue v Stevenson3 because they concluded that ‘the law must treat negligent words differently from negligent acts’.4 At virtually the same time across the Atlantic, the law of negligent misrepresentation was changing in very similar ways in the United States. Courts and scholars increasingly criticised the longstanding restrictive rule of liability and offered various formulations that also mostly sought a middle ground between no liability and liability equivalent to the rule of foreseeability applied in cases of physical injury. In 1965 The American Law Institute adopted §552 of the Restatement (Second) of Torts, which encapsulated the developing thinking and became widely endorsed by courts. Neither Hedley Byrne nor §552 resolved all the issues about the scope of liability for negligent misstatement, of course. In the United States some courts have continued to adhere to older approaches, the important commercial jurisdiction of New York forged its own path, and some statutes carved out exceptions. Even courts that adopted §552 grapple with the meaning and application of its elements.

1

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) (‘Hedley Byrne’). Derry v Peek (1889), 14 App Cas 337 (HL). The rule had been reaffirmed in Le Lievre v Gould [1893] 1 QB 491 (CA) and Candler v Crane Christmas & Co [1951] 2 KB 164 (CA), with Denning LJ notably dissenting in the latter case. 3 Donoghue v Stevenson [1932] AC 562 (HL). 4 Hedley Byrne (n 1) 482 (Lord Reid). 2

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This chapter explores the transformation of the law of negligent misstatement in the United States.5 It describes the restrictive approach to liability universally adopted through the mid-twentieth century, how the developments of the 1960s changed that approach, and what has happened since. It also situates the doctrinal development within broader trends in the law. The changes in law of negligent misstatement reflect transformations in tort law and in the understanding of law as public or private. Because law is not autonomous from broader social trends, it also suggests links between the legal change and political and ideological movements.

II. Precursors At the end of the nineteenth century in the United States, the ‘overwhelming weight of authority’6 supported the proposition that the lack of privity barred an action for negligent misstatement, whether that action was brought in negligence or misrepresentation. Courts largely relied on the United States Supreme Court’s 1879 decision in Savings Bank v Ward.7 A bank that lent and lost money on a real estate loan brought an action against the lawyer who negligently prepared the title report on which the bank relied. The Court cited Winterbottom v Wright8 for the fear of the ‘absurd consequences’ of indeterminate liability that would ensue if an action by someone other than the lawyer’s client was allowed.9 Accordingly, it held that only parties in privity could sue for negligent misstatement. Even evidence that, according to local usage, the lawyer examining the title acted for the lender as well as the buyer did not demonstrate a sufficient relationship to establish a duty in the absence of privity. Other courts subsequently used the Court’s principle to bar actions by parties not in privity against design professionals,10 title abstracters,11 and certified public accountants,12 among others. In the early twentieth century courts moved away from the rule of Winterbottom v Wright, particularly in cases involving manufactured products. The most

5 The discussion in the chapter is confined to an action for negligent misrepresentation brought by a party other than one who has a contract with the defendant. On the overlap between the negligent misrepresentation and negligence actions, see J Feinman, ‘Liability of Lawyers and Accountants to Non-clients: Negligence and Negligent Misrepresentation’ (2014) 67 Rutgers University Law Review 127. There also is a body of case law on negligent misrepresentation in two-party cases. See, for example, Stewart v Jackson & Nash (1992) 976 F2d 86 (2d Cir); Colorado Visionary Academy v Medtronic Inc (2005) 397 F3d 867 (10th Cir). 6 Buckley v Gray (1895) 42 P 900, 900 (Cal). 7 Savings Bank v Ward 100 US 195 (1879). 8 Winterbottom v Wright (1842) 10 M & W 109, 152 ER 402. 9 Savings Bank (n 7) 203. 10 See, eg, Geare v Sturgis (1926) 14 F2d 256 (DC Cir). 11 See, eg, Shine v Nash Abstract & Investment Co (1928) 108 So 626 (Ala). 12 See, eg, Landell v Lybrand (1919) 107 A 783 (Pa).

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important opinion in this movement was by Judge Benjamin Cardozo of the New York Court of Appeals in MacPherson v Buick Motor Co,13 in which foreseeability replaced privity as the standard for liability. In a subsequent pair of cases, Cardozo J and his Court first raised the possibility of extending foreseeability to cases of economic harm caused by negligent misstatement and then dramatically limited that possibility. In Glanzer v Shepard the Court imposed liability for economic harm suffered by a purchaser of beans when the bean weigher, under contract to the seller, certified an erroneous weight for the beans.14 Cardozo J stated: We think the law imposes a duty toward buyer as well as seller in the situation here disclosed. The plaintiffs’ use of the certificates was not an indirect or collateral consequence of the action of the weighers. It was a consequence which, to the weighers’ knowledge, was the end and aim of the transaction. [The seller] ordered, but [the buyers] were to use. The defendants held themselves out to the public as skilled and careful in their calling. They knew that the beans had been sold, and that on the faith of their certificate payment would be made. They sent a copy to the plaintiffs for the very purpose of inducing action. All this they admit. In such circumstances, assumption of the task of weighing was the assumption of a duty to weigh carefully for the benefit of all whose conduct was to be governed. We do not need to state the duty in terms of contract or of privity. Growing out of a contract, it has none the less an origin not exclusively contractual. Given the contract and the relation, the duty is imposed by law.15

The ‘end and aim’ of the transaction was to provide a service to the buyer, so the buyer had an action against the weigher either as the third party beneficiary of the weigher’s contract with the seller or under a ‘duty … imposed by law’ for its negligence. Glanzer v Shepard was followed by Ultramares Corp v Touche,16 which for ensuing decades largely defined the law of negligent misstatement. In Ultramares an accountant had prepared and certified a balance sheet for its client, as it had done for several years, and it supplied the client with 32 copies of the certified balance sheet, knowing that the client would provide them to lenders and creditors. Ultramares provided financing to the client in reliance on the balance sheet. Because the accountant negligently failed to detect that the client’s principals had falsified the company’s accounts receivable, Ultramares suffered a loss when the business collapsed. Cardozo J’s opinion for the Court recognised that ‘The assault upon the citadel of privity is proceeding in these days apace’17 in tort cases involving personal injury and in contract law through the widening of third-party beneficiary liability. But he refused to extend the foreseeability principle of MacPherson to economic harm caused by an accountant’s neglect, and he limited Glanzer’s ‘end and aim’ concept 13 14 15 16 17

MacPherson v Buick Motor Co (1916) 111 NE 1050 (NY). Glanzer v Shepard (1922) 135 NE 275 (NY). ibid 275–76. Ultramares Corp v Touche (1931) 174 NE 441 (NY). ibid 444.

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to cases in which there was a connection between the plaintiff and the defendant that was the equivalent of privity. The Court characterised Ultramares as a case involving a misstatement rather than a service. Accordingly, the issue (as it would be in Hedley Byrne) was what ‘liability attaches to the circulation of a thought or a release of the explosive power resident in words’.18 The implications of imposing liability would be catastrophic. Potentially immense and uncertain liability would extend to accountants and to other professions and businesses. In Cardozo J’s immortal aphorism: If liability for negligence exists, a thoughtless slip or blunder, the failure to detect a theft or forgery beneath the cover of deceptive entries, may expose accountants to a liability in an indeterminate amount for an indeterminate time to an indeterminate class.19

Accordingly, only when there was a contract or an equivalent relationship would an accountant be liable to a third party who relied on its negligently prepared report.

III. Transformation The Ultramares rule reigned for decades until, by the early 1960s, a confluence of intersecting activities by the Bench, Bar and academy caused courts to reconsider its restrictive approach to liability for negligent misstatement. In this period, a significant body of scholarly commentary highlighted the issue of liability for negligent misstatement and challenged the Ultramares rule, a number of important decisions allowed actions for negligent misrepresentation in various types of situations, and Restatement (Second) of Torts §552 was adopted by the American Law Institute and then widely followed. A small but important body of scholarly literature argued for expansion of liability for negligent misstatement. The literature identified misstatement and some related cases as presenting a distinctive class and it highlighted some of the difficulties with the old law and supported new approaches. The most prominent example is an article, ‘Misrepresentation and Third Persons’ by the pre-eminent torts scholar William Lloyd Prosser.20 Prosser had first published his authoritative treatise on torts in 1941, with successive editions through 1971.21 The treatise contained an odd but irresistible mix of critique of older law and the policy underlying it with a comforting resort to reformulated doctrine. Its overall approach 18

ibid 445. ibid 444. 20 W Prosser, ‘Misrepresentation and Third Persons’ (1966) 19 Vanderbilt Law Review 231. Also important was a symposium on professional negligence in the Vanderbilt Law Review (1959) 12 Vanderbilt Law Review 535 and P Keeton, ‘Fraud: The Necessity for an Intent to Deceive’ (1958) 5 University of California Los Angeles Law Review 583. 21 WL Prosser, The Law of Torts (St Paul, Minn., West, 1941). See GE White, Tort Law in America: An Intellectual History (New York, Oxford University Press, 1980) ch 5. 19

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recognised the element of critique that courts in tort cases were engaged in policy making but it ordered neat groups of cases that took on the status of doctrinal rules. ‘Misrepresentation and Third Persons’ likewise reviewed the history of the area, finding ‘a great many more cases’ than previously had been recognised and that patterns and conclusions could be drawn from the cases. It also analysed the elements of the doctrine and grouped the cases in separate categories for doctrinal treatment, concluding that: One who makes a false representation is liable, whether on the basis of intent, negligence or strict liability, to those whom he intends, for his own purposes, to reach and influence by the representation [and] those members of a group or class whom he has special reason to expect to be influenced by the representation,

with some uncertainty about the latter group in the case of negligence.22 Two construction cases decided in 1962 were among the few direct authorities available to the drafters of §552 and so were much cited in later cases. In M Miller Company v Central Contra Costa Sanitary District23 the Court applied the recently formulated California test for determining a duty of reasonable care in all types of cases24 to permit an action by the contractor on a sewer project against the design engineer and the engineer who conducted the soil tests and provided a report on the tests for bidders on the project. Because the material underlying the construction site was unstable in a manner not anticipated by the report, the successful bidder’s construction cost was greater than it had projected. The Court held that the bidder stated a cause of action against the soil engineer because the engineer was alleged to know that its report would be relied on by prospective bidders. Texas Tunneling Co v City of Chattanooga25 involved an action by a subcontractor against the engineer on a sewer project for failing to include in the bid documents certain information about test bore drillings, as a result of which the subcontractor underestimated its expenses on the project. The Court noted that foreseeability is required to establish a duty in negligence, and ordinarily the specific injury that the defendant suffers need not be foreseen if the type of injury was foreseeable. The particular plaintiff need not be foreseeable either, if the ‘class of persons which a given act may foreseeably affect’ is known.26 Accordingly, it held that an action for negligent misrepresentation was available and it stated three policy bases for rejecting the Ultramares requirement of a bond approaching privity: [T]he growing complexity of business relations and the growing specialization of business functions all require more and more reliance in business transactions upon the representations of specialists … Further, the New York rule has the effect of placing the burden of loss, as between the negligent maker of a misrepresentation and the 22

Prosser (n 20) 254. M Miller Co v Central Contra Costa Sanitary District (1961) 18 Cal Rptr 13 (Ct App). 24 See Biakanja v Irving (1958) 320 P2d 16 (Cal). 25 Texas Tunneling Co v City of Chattanooga (1962) 204 F Supp 821 (ED Tenn); rev’d in part, (1964) 329 F2d 402 (6th Cir). 26 ibid 834. 23

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plaintiff, upon the latter, though he be both injured and innocent. Finally, the trepidation expressed by the New York court at the unlimited areas of liability which it was ‘invited’ to recognize, may be no more than a tilting at windmills. [T]here are methods for limiting liability for negligent misrepresentation which are less artificial and less drastic than the rule adopted in the Ultramares case.27

The adoption of §552 was the signal event in this period that transformed the approach of most courts. Section 552 provides: §552. Information Negligently Supplied for the Guidance of Others (1) One who, in the course of his business, profession or employment, or in any other transaction in which he has a pecuniary interest, supplies false information for the guidance of others in their business transactions, is subject to liability for pecuniary loss caused to them by their justifiable reliance upon the information, if he fails to exercise reasonable care or competence in obtaining or communicating the information. (2) Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered (a) by the person or one of a limited group of persons for whose benefit and guidance he intends to supply the information or knows that the recipient intends to supply it; and (b) through reliance upon it in a transaction that he intends the information to influence or knows that the recipient so intends or in a substantially similar transaction. (3) The liability of one who is under a public duty to give the information extends to loss suffered by any of the class of persons for whose benefit the duty is created, in any of the transactions in which it is intended to protect them.

The Texas Tunneling Court cited the first Restatement of Torts §552, which had expressed a rule analogous to the Ultramares rule. Under the original §552, ‘As in the case of fraudulent misrepresentations the liability is confined to those who are intended to rely upon the information and who rely upon it in a type of transaction in which it is the maker’s purpose to influence their conduct’.28 Until this period, courts generally had been chary in applying the section, seldom expanding liability beyond the ‘end and aim’ logic of the section and Ultramares. In the process of redrafting §552 for the Restatement (Second), Prosser, the Restatement’s Reporter, noted this reluctance, reworded the section to ‘clarify its meaning’29 and expanded the official comments. Following the drafting of the revised §552 a number of notable cases quickly applied it in an expansive fashion and asserted the policy basis for a broad application. Rusch Factors Inc v Levin was the first accountant liability case to depart from

27 28 29

ibid 833–34. Restatement of Torts §552 comment (a) (1938). Restatement (Second) of Torts §552, Reporter’s Note (1965).

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Ultramares.30 Noting the breakthrough it was making, the Court offered a policy defence of its position: Why should an innocent reliant party be forced to carry the weighty burden of an accountant’s professional malpractice? Isn’t the risk of loss more easily distributed and fairly spread by imposing it on the accounting profession, which can pass the cost of insuring against the risk onto its customers, who can in turn pass the cost onto the entire consuming public? Finally, wouldn’t a rule of foreseeability elevate the cautionary techniques of the accounting profession? For these reasons it appears to this Court that the decision in Ultramares constitutes an unwarranted inroad upon the principle that ‘the risk reasonably to be perceived defines the duty to be obeyed’.31

In Rozny v Marnul,32 liability was imposed on a surveyor in favour of a subsequent purchaser of negligently surveyed property. The Court distinguished between the reluctance to impose liability when the harm to the third party was merely ‘foreseeable’ and the willingness to impose liability ‘when the reliance of the third person might have been said to be known’.33 The Court considered and rejected the Ultramares limitation on liability in favour of foreseeability: We agree that the unknown and unlimited liability factor, as so ably stated by Mr. Justice Cardozo in the Ultramares case, is not to be lightly discounted. But we deal here with a defendant who has included on his inaccurate plat an ‘absolute guarantee for accuracy.’ As might reasonably have been foreseen by defendant who admitted that he knew the plats were customarily used by lending agencies and others, that plat was subsequently relied on to his damage by a third party in connection with the financing and purchase of the surveyed property. Under these circumstances it seems to us fortuitous that the ultimate loss resulting from the faulty survey fell upon one other than the person for whom the survey was made should not absolve defendant from responding in damages. The situation is not one fraught with such an overwhelming potential liability as to dictate a contrary result, for the class of persons who might foreseeably use this plat is rather narrowly limited, if not exclusively so, to those who deal with the surveyed property as purchasers or lenders. Injury will ordinarily occur only once and to the one person then owning the lot.34

The American Law Institute is in the process of drafting the Restatement (Third) of Torts: Liability for Economic Harm, with the first sections recently having been adopted. The Restatement (Third) begins with a rule that there is no general duty to avoid negligently inflicted economic loss.35 Although there is no general duty, duties arise in particular classes as recognised in subsequent sections of the

30

Rusch Factors Inc v Levin (1968) 284 F Supp 85 (DRI). ibid 91. The last quotation, from Cardozo J’s landmark opinion in Palsgraf v Long Island Railroad Co (1928) 162 NE 99, 100 (NY), brings misstatement cases within the law of negligence, as a citation. On the facts, Rusch Factors more closely resembled Glanzer than Ultramares because the plaintiff was a single party whose reliance was actually foreseen by the accountant. 32 Rozny v Marnul (1969) 250 NE2d 656 (Ill). 33 ibid 661. 34 ibid 662. 35 Restatement (Third) of Torts: Liability for Economic Harm §1 (Tentative Draft 1, 2012). 31

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Restatement, and residual duties may be identified in appropriate circumstances.36 Negligent misstatement is an instance of ‘invited reliance,’ one of the established exceptions to the Restatement’s rule of no general duty.37 Section 5 of the Restatement (Third) repeats the terms of §552 with only minor changes in language.38 The Restatement also specifies an action for negligently inflicted economic harm, with the elements of the causes of action essentially the same as for negligent misstatement;39 the two actions are intended to be ‘complementary’.40

IV. Tension and Controversy Today the great majority of jurisdictions use Restatement (Second) of Torts §552 as the appropriate standard in negligent misstatement cases. But tension in its application and controversy about the issues involved in negligent misstatement remain. The principal competitor to §552 is the near privity doctrine with which the New York Court of Appeals has revitalised the Ultramares principle. In Credit Alliance Corp v Arthur Andersen & Co and subsequent cases, the Court framed a doctrine that preserved the policies of Glanzer and Ultramares but is easier to apply than the standards in those cases.41 The Court’s rule took the form of two three-prong tests. The first test stated the elements of a negligent misrepresentation cause of action: (1) the existence of a special or privity-like relationship imposing a duty on the defendant to impart correct information to the plaintiff; (2) that the information was incorrect; and (3) reasonable reliance on the information.42

The second test determined whether there was a sufficient relationship to satisfy the first element of the cause of action: (1) [the defendant] must have been aware that [its information] was to be used for a particular purpose or purposes; (2) in the furtherance of which a known party or parties was intended to rely; and (3) there must have been some conduct on the part of [the defendant] linking it to that party or parties, which evinces the [defendant’s] understanding of that party or parties’ reliance.43 36

ibid §1 comment (e). ibid §1 comment (d). 38 ibid §5 comment (a). 39 ibid §6. 40 ibid §6 comment (a). 41 Credit Alliance Corp v Arthur Andersen & Co (1985) 483 NE2d 110 (NY). The court has reaffirmed the doctrine in recent cases including Sykes v RFD Third Ave 1 Assocs LLC (2010) 912 NYS2d 172 (Ct App), citing Westpac Banking Corp v Deschamps (1985) 484 NE2d 1351 (NY). 42 Mandarin Trading Ltd v Wildenstein (2011) 919 NYS 2d 465 (Ct App), citing JAO Acquisition Corp v Stavitsky (2007) 863 NE2d 585 (Ct App) and Parrott v Coopers & Lybrand (2000) 741 NE2d 506 (Ct App). 43 Credit Alliance (n 41) 118. 37

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The two cases that were consolidated for appeal in Credit Alliance demonstrate the application of the tests. In Credit Alliance itself, an accountant was held not liable to a lender who had loaned money to the accountant’s client in reliance on the accountant’s erroneous audit, a copy of which had been provided to it by the client. Even though the accountant knew or had reason to know that the client was showing the report to the lender to induce the loan, there was no allegation that the audit was prepared for that particular purpose or that the accountant had any direct dealings with the plaintiff. Thus, the elements of the test were lacking, especially the linking conduct required by the third element. In European American Bank and Trust Co v Strauhs & Kaye,44 however, a lender alleged that the accountant was aware that it was relying on the accountant’s work in valuing the collateral of its loans and otherwise assessing the financial status of the accountant’s client, the borrower. Further, the accountant and the lender were in contact with respect to the borrower’s affairs over a substantial period of time, they met for the purpose of discussing the borrower’s financial condition and the lender’s reliance on the accountant’s evaluation, and the accountant made repeated representations in person about the value of the borrower’s assets. Therefore, each element of the test was met, particularly the requirement of linking conduct. The requirement of some linking conduct or nexus between the purveyor of information and the relying third party has become the most important and the most difficult for a plaintiff to meet. Cases since Credit Alliance suggest that the conduct required of the defendant must clearly indicate that the defendant knows that the plaintiff will rely on the information it provides in the specific transaction, and that the reliance is a motivation for the defendant’s engagement. When both of those factors are not clearly shown by the linking conduct, no liability is possible.45 Credit Alliance stands in opposition to §552, and it has been adopted by a few jurisdictions other than New York.46 Even among jurisdictions that apply the Restatement rule there is considerable controversy about the breadth of its application. The most significant differences concern who may rely on the information and the transaction in which the reliance may occur. The drafters of the Restatement (Second) intended that the scope of liability for negligent misstatement should be narrower than for intentional misrepresentation and that it should be 44

European American Bank and Trust Co v Strauhs & Kaye (1984) 102 AD2d 776 (NY). See, eg, Sykes v RFD Third Ave 1 Associates LLC (2009) 884 NYS 2d 745 (App Div). But see Barrett v Freifeld (2009) 883 NYS 2d 305 (App Div) (buyer’s allegation that accountant was aware that the financial statements provided were to be used by seller in attempting to sell its business and that accountant knew the identity of buyer held sufficient to allege linking conduct). 46 See, eg, Idaho Bank & Trust Co v First Bancorp (1989) 772 P2d 720, 722 (Idaho); Walpert, Smullian & Blumenthal PA v Katz (2000) 762 A2d 582 (Md); Thayer v Hicks (1990) 793 P2d 784, 789 (Mont). A few jurisdictions still maintain a privity standard. See JM Feinman, Professional Liability to Third Parties, 3rd edn (Chicago, Ill., ABA, 2013) §3.2. Some jurisdictions have adopted statutes that require near privity for actions against accountants. See, eg, Kansas Statutes Annotated §1-402 (2012); Louisiana Revised Statutes Annotated §37:91 (2012); New Jersey Statutes Annotated §2A:53A-25 (2013); Wyoming Statutes Annotated §33-3-201 (2006). 45

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determined by a Learned Hand-type balancing formula for negligence.47 The test is ‘a relative standard, which may be defined only in terms of the use to which the information will be put, weighed against the magnitude and probability of loss that might attend that use if the information proves to be incorrect’.48 Subsection (2) of §552 mandates a double requirement of intent or knowledge, as to both the person who relies on the information and the transaction in which that person relies. The courts vary in the degree of intent or knowledge required of the defendant, from a narrow focus on the actual intent of the defendant to a broad consideration of the relationships in the context in which the misrepresentation is made. In Bily v Arthur Young & Co the California Supreme Court practically equated the knowledge requirement of §552 with the intent standard for intentional torts or the intended beneficiary requirement of contract law.49 The Court stated: The ‘intent to benefit’ language of the Restatement (Second) thus creates an objective standard that looks to the specific circumstances (eg, supplier-client engagement and the supplier’s communications with the third party) to ascertain whether a supplier [of information] has undertaken to inform and guide a third party with respect to an identified transaction or type of transaction.50

At the other extreme, some courts loosen the knowledge test so it approaches foreseeability. For example, when an appraisal of real property is a condition of the buyer’s financing, the buyer is deemed to rely on the making of the loan as an indication of the value of the property as determined by the appraisal, and the appraiser is held to have constructive knowledge of the buyer’s constructive reliance.51 The particular borrower who is likely to rely may be known to the appraiser or the appraiser may only know that some borrower, then unidentified, will rely on the appraisal; in either case, the borrower is a foreseeable victim of a negligently prepared appraisal.52 Many courts require that a defendant know of the potential user of the information it provides and of the potential use of the information.53 This standard constitutes a middle ground between the intent standard of Bily and a rule which renders the defendant liable for foreseeable uses of the information.54 ‘Knowledge’ 47

See United States v Carroll Towing Co (1947) 159 F2d 169 (2nd Cir). Restatement (Second) of Torts §552 comment (a) (1965). 49 Bily v Arthur Young & Co (1992) 834 P2d 745 (Cal). See also, Giacometti v Aulla LLC (2010) 114 Cal Rptr 3d 724 (Cal App). 50 Bily v Arthur Young & Co (n 49) 769. 51 See, eg, Costa v Neimon (1985) 366 NW2d 896 (Wis Ct App). 52 See Larsen v United Federal Savings & Loan Association of Des Moines (1981) 300 NW2d 281 (Iowa). 53 See, eg, First Fla. Bank v Max Mitchell & Co (1990) 558 So 2d 9 (Fla); Decatur Ventures LLC v Daniel (2007) 485 F3d 387 (7th Cir); DeBoer v American Appraisal Associates (2007) 502 F Supp 2d 1160 (D Kan 2007); Douglas Asphalt Co v QORE Inc (2011) 657 F3d 1146 (11th Cir); Nycal Corp v KPMG Peat Marwick LLP (1998) 688 NE2d 1368 (Mass); First National Bank of Bluefield v Crawford (1989) 386 SE2d 310 (W Va). 54 Raritan River Steel Co v Cherry Bekaert & Holland (1988) 367 SE2d 609, 617 (NC). 48

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under this standard is distinguished from the Bily Court’s emphasis on actual intent or substantial certainty of consequences and from foreseeability.55

V. Context Hedley Byrne and its American analogue, Restatement (Second) of Torts §552, are landmarks in the law of negligent misstatement. Each represents a major expansion of liability from restrictive precursors, and neither has settled the controversy over the proper scope of liability. The historical shifts and the contemporary controversies illustrate broader shifts in approaches to law in general and tort law in particular. The non-liability rule of Savings Bank v Ward reflects classical legal thought, the body of law usually seen as dominant from 1870 to 1920.56 Classical legal thought conceived of a world of independent individuals, each acting within a broad sphere of legal autonomy to pursue his own self-interest. The role of courts in private law cases was to facilitate this pursuit by applying a complete, coherent and formal body of contract, tort and property law. Fact situations such as Savings Bank v Ward fell within the scope of private ordering governed by contract law—one was either a client or one was not—so privity reigned and barred a tort remedy. Cardozo J’s opinions in Glanzer and Ultramares embody the movement away from classical legal thought. Cardozo J was the most important common law judge of the first half of the twentieth century,57 and his stature certainly enhanced the importance of the opinion, which became widely lauded as a proper assessment of the law and policies applicable to negligent misstatement. Cardozo J was a transitional figure in modernising the law, a bridge between the late nineteenth century and the mid-twentieth century. He was deified by the movement among 55 Bank of New Orleans & Trust Co v Monco Agency (1989) 719 F Supp 1328, 1331–32 (ED La). As the Restatement makes clear, the knowledge required is not necessarily knowledge of the identity of the particular relying plaintiff; when the defendant knows that one or more members of an identifiable group will rely, that knowledge is sufficient. As the group grows larger and less predictable in size, the reliance of its members may be deemed not known. See, Machata v Seidman & Seidman (1994) 644 So 2d 114 (Fla Dist Ct App); Milliner v Elmer Fox & Co (1974) 529 P2d 806 (Utah); see also Ellis v Grant Thornton LLP (2008) 530 F3d 280, 291 (4th Cir) (accountant not liable to prospective employee who relies on audit). But see In re Checkers Securities Litigation (1994) 858 F Supp 1168 (MD Fla) (court cannot hold as matter of law that open market purchasers of securities have no action under §552); Boykin v Arthur Andersen & Co (1994) 639 So 2d 504 (Ala). 56 See J Feinman, ‘Un-Making Law : The Classical Revival in the Common Law’ (2004) 28 Seattle University Law Review 1, 3–7. The literature on classical legal thought is vast and continually in flux; for a review, see sources cited ibid and S Siegel ‘Comment: The Revision Thickens’ (2002) 20 Law & History Review 631. 57 See A Kaufman, Cardozo (Cambridge, Harvard University Press, 1998); GE White, The American Judicial Tradition (New York, Oxford University Press, 1976) ch 12. In a tribute without precedent before or equal since, the Columbia Law Review, Harvard Law Review and Yale Law Journal published a joint tribute issue marking Cardozo J’s death: (1939) 39 Columbia Law Review 1; (1939) 52 Harvard Law Review 353; (1939) 48 Yale Law Journal 371.

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pragmatists, Progressives, sociological jurisprudents, and American Legal Realists who developed a critique of classical law. In their critique, law could not be complete, coherent and formal; the inadequacy of language and the complexity of facts made the ideal unrealisable; rules could not be both precise and comprehensive, so judges, not rules, decided the cases. Decisions in contract, property and tort cases all necessarily involve discretion and policy judgements in imposing legal liability.58 Cardozo J embodied this critique by looking to facts and context and not just rules in deciding a series of cases across private law, and his influence was aided by a gift for the memorable phrase. Obligations in contract law extended beyond the express terms of the parties’ agreements because business settings often were ‘instinct with an obligation’.59 The trust invested in fiduciaries required them to adhere to ‘a punctilio of honor most sensitive’.60 Tort liability for foreseeable harm was situational because ‘the orbit of the danger as disclosed to the eye of reasonable vigilance would be the orbit of the duty’ and ‘negligence, like risk, is thus a term of relation’.61 Ultramares expresses this approach with its emphasis on the detrimental effects of potentially indeterminate liability on the part of accountants and other professionals; Glanzer was different because of particular facts in its situation such that the relationship was almost contractual. Yet Ultramares is transitional because it had not incorporated elements of the critique of classical thought that ultimately would shift the focus of tort law from corrective justice to collective justice.62 Section 552 and the opinions and the commentary prior to and surrounding its development are examples of neoclassical law in the United States, the dominant mode in private law from the 1960s to the present.63 Cardozo J recognised the bankruptcy of the aspirations of classical law to formality and objectivity; later judges and scholars also recognised the incompleteness of the substantive vision of classical law. The classical vision was individualist, but collectivist concerns of social welfare also were important in judicial law making. This was true in theory—the market is not the measure of all things—and it is even more evident in practice. Principles of individualism and the market fail in the context of the lack of personal choice in an imperfect world, concentrations of economic power, and complex networks of social relations. In the 1960s and 1970s, the perception that markets had failed to generate real consumer choice or an adequate level of safety created a demand for judicial and legislative solutions.64 Therefore, in 58

See Feinman (n 56) 7–11. Wood v Lucy, Lady Duff-Gordon (1917) 118 NE 214 (NY). 60 Meinhard v Salmon (1928) 164 NE 545, 546 (NY). 61 Palsgraf (n 31) 100–01. 62 ‘Tort law, as dominated by the negligence principle, revealed itself to Cardozo and his contemporaries as an amorphous, evolving mass, its status as a moral force ambiguous and ephemeral. The Glanzer-Ultramares sequence reveals Cardozo struggling with that insight’: White (n 21) 136. 63 See Feinman (n 56) 11–14. 64 G Schwartz, ‘The Beginning and the Possible End of the Rise of Modern American Tort Law’ (1992) 26 Georgia Law Review 601, 634–38. 59

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deciding individual cases and formulating rules for the decision of future cases, courts need to immerse themselves in detailed contextual inquiry, and that process reveals difficult normative choice. In neoclassical tort law, fairness largely is redefined in collective terms as the advancement of the policies of injury prevention and compensation, often best achieved through loss spreading. Enterprise liability became a basic tenet of tort law.65 Activities and enterprises, especially business enterprises, should internalise the costs of the accidents they produce and distribute the costs among those who participate in or benefit from the activity. Enterprise liability promotes safety by placing the incentive to reduce accident costs on the entity best able to control risks, and it affects fairness by shifting the focus of analysis from an individual accident to the enterprise or activity in which the injurer is engaged. The expansion of liability for negligent misstatement in §552 is consistent with these trends. Savings Bank v Ward viewed the problem of negligent misstatement as contractual. Ultramares recognised a broader context—the indeterminacy problem—but through a stylised approach that failed to consider fully the business context of the rule and the need to protect relying parties. When the Texas Tunneling Court analysed the manifold relations in construction projects and concluded that ‘The growing complexity of business relations and the growing specialization of business functions all require more and more reliance in business transactions upon the representations of specialists’66 it was employing a much richer analysis. And when the Rusch Factors Court wrote of loss distribution, loss spreading, and the incentive effects of a foreseeability rule, it was expressing a broader vision of social policy than was seen in Ultramares. The continuing controversies over the scope of liability for negligent misstatement, between the Credit Alliance rule and, within applications of §552, between intent-focused approaches such as Bily and approaches that lean towards foreseeability, are hardly surprising. At one level these can be seen as typical disagreement about doctrine or policy. Courts deciding similar cases often use different rules, or use the same rule in different ways. But from the broader perspective this chapter has suggested, something else is going on. Neoclassical law always has embodied tension; it is neoclassical precisely because it attempts to balance elements of classical law with elements of the critique—autonomy and regulation, private and public, contract and tort, among others. The conflict between Credit Alliance and Bily on the one hand and broad interpretations of §552 on the other continue to embody that tension. The former focuses on contract or contract-like relationships and the dangers that arise from

65 See, eg, G Priest, ‘The Invention of Enterprise Liability : A Critical History of the Intellectual Foundations of Modern Tort Law’ (1985) 14 Journal of Legal Studies 461, 520; R Rabin, ‘Some Thoughts on the Ideology of Enterprise Liability’ (1996) 55 Maryland Law Review 1190, 1190–92; Schwartz (n 64). 66 Texas Tunneling (n 25).

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imposing liability where it has not been assumed. The latter emphasises tort principles of harm and relations of reliance and responsibility. The restrictive approach to negligent misstatement even may have gained strength by something of a classical revival in the law in the past few years.67 This movement is called a classical revival because it aims to restore the primacy of private ordering over public regulation in private law. In this view, contract is primary and tort is subordinate. The neoclassical expansion of tort liability, because it is not based on a traditional conception of fault, imposes unfair burdens on social actors. Within the law of negligence, for example, the expansion of liability through foreseeability or other tests of duty goes too far in imposing liability out of proportion to fault. The traditional policy goals of tort law are viewed through a market mechanism and restated as providing reasonable incentives for balancing productive behaviour against safety and compensation through a not-too-expensive system of liability so the law does not burden market actors too much. Under this view, in the law of negligent misstatement, the analysis of Ultramares is still essentially correct: the threat of indeterminate liability impedes productive relations, so contract-like relations are a prerequisite of liability. And more: what is in play here is not just legal doctrine or legal theory but also ideology and politics. The privity requirement of Savings Bank v Ward reflected classical legal thought, which was law for the late nineteenth century Gilded Age, the age when ‘conservatives—or better, pro-corporate apologists—hijacked the vocabulary of Jeffersonian liberalism and turned words like “progress”, “opportunity”, and “individualism” into tools for making the plunder of America sound like divine right’.68 Restatement §552 reflects the culmination of the period from the New Deal through the Great Society, when all the tools of government, legislative and judicial, were applied to create a modest American version of the welfare state. Social Security, Medicare and the War on Poverty were accompanied by a dramatic expansion of liability through interest balancing in tort law and regulation of bargaining in contract law, all in service of a just world. The classical revival illustrated by Credit Alliance and restrictive interpretations of §552 represent at their most extreme the resurgence of conservatism. This is law for the age of Reagan (or Thatcher), in which ‘Government is not the solution to our problems; government is the problem’.69 Broad liability for negligent misstatement is at odds with the proper role of government. As described by Judge Richard Posner: The government’s role is to provide an unobtrusive framework for private activities. Government provides certain goods, such as national defense and (in some versions) education, that private markets will not provide in sufficient quantities. But beyond that

67

See Feinman (n 56). Bill Moyers, ‘This is Your Story—The Progressive Story of America. Pass It On’ (Common dreams, 4 June 2003) www.commondreams.org/views/2003/06/10/your–story-progressive-storyamerica-pass-it. 69 Ronald Reagan, ‘First Inaugural Address’ (20 January 1981) www.presidency.ucsb.edu/ws/? pid=43130. 68

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it merely protects a handful of entitlements (property rights and some personal liberties) that are necessary to prevent markets from not working at all or from running off the rails.70

These lines of association may seem too dramatic or even apocalyptic. Sometimes a cases is just a case, a rule just a rule. But no case or rule is a tub on its bottom. One of the ambitions of scholarship is to situate cases and rules within concentric circles of context, and legal change and political process are part of the context.

70

RA Posner, ‘Army of the Willing’ New Republic (9 May 2003).

11 Hedley Byrne: Misused, then Exiled by the Supreme Court of Canada BRUCE FELDTHUSEN

I. Introduction It is difficult to believe that the decision in Hedley Byrne v Heller1 is more than 50 years old. It was in 1963 that the House of Lords rendered this landmark decision. The plaintiff was ultimately unsuccessful. However, the House recognised for the first time a cause of action for misrepresentation in negligence that would support recovery for pure economic loss. Hedley Byrne ranks along with the decisions in Donoghue v Stevenson,2 and Anns v Merton London Borough Council3 as among the most influential decisions in Canadian negligence law. It was adopted quickly and often—and originally without reservation—by the Supreme Court of Canada.4 I am not sure how many Canadian judges and lawyers realise that Hedley Byrne is no longer the law in Canada. In its 1997 decision in Hercules Management v Ernst & Young,5 the Supreme Court jettisoned the wisdom of Hedley Byrne in favour of the folly of Lord Wilberforce in Anns.

1

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) (‘Hedley Byrne’). Donoghue v Stevenson [1932] AC 562 (HL). 3 Anns v Merton London Borough Council [1978] AC 728 (HL) (‘Anns’). 4 Hedley Byrne (n 1) was accepted, but distinguished the first two times it was considered. See Welbridge Holdings Ltd v Greater Winnipeg [1971] SCR 957 and J Nunes Diamonds Ltd v Dominion Electric Protection Co [1972] SCR 769. See also Hodgins v Nepean (Township) Hydro-Electric Commission [1976] 2 SCR 501; Haig v Bamford [1977] 1 SCR 466; Carman Construction Ltd v Canadian Pacific Railway Co [1982] 1 SCR 958; Kamloops (City) v Nielsen [1984] 2 SCR 2; VK Mason Construction Ltd v Bank of Nova Scotia [1985] 1 SCR 271, [1985] SCJ No 12; BDC Ltd v Hofstrand Farms Ltd [1986] 1 SCR 228; Central Trust Co v Rafuse [1986] 2 SCR 147; Fletcher v Manitoba Public Insurance Co [1990] 3 SCR 191; Queen v Cognos [1993] 1 SCR 87; BG Checo International Ltd v British Columbia Hydro and Power Authority [1993] 1 SCR 12; Edgeworth Construction Ltd v ND Lea & Associates Ltd [1993] 3 SCR 206; Winnipeg Condominium Corporation No 36 v Bird Construction Co [1995] 1 SCR 85 (‘Winnipeg Condominium’); Hercules Managements Ltd v Ernst & Young [1997] 2 SCR 165 (‘Hercules’); R v Imperial Tobacco Canada Ltd [2011] 3 SCR 45 (‘Imperial Tobacco’). 5 Hercules (n 4). 2

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It is interesting in its own right that the three most influential decisions in Canadian negligence law were rendered by the House of Lords. The Supreme Court of Canada was created in 1875, and appeals to the Privy Council were abolished in 1949. Nevertheless, at least until the 1970s, a colonial mentality governed Canadian judicial law making.6 Some believe that the Supreme Court did not really come into its own until 1982, when the Canadian Charter of Rights and Freedoms was adopted. The Charter also ensured that public law, not private law, would become the dominant form of law making at the Supreme Court. Canadian private law was subservient to English law before 1980 and subservient to public law thereafter. With the significant and unfortunate exception of the decision in Anns, the Canadian courts eventually did distance themselves from the House of Lords, especially in the area of negligence causing pure economic loss.7 Sadly, this independent tack has often had a more salutatory effect on national pride than on Canadian negligence law. The following story about the fate of Hedley Byrne in Canada will illustrate this point. One would think that the influence of Hedley Byrne would have been greatest in the law of negligent misrepresentation. In one sense this is true. The Supreme Court has never discussed negligent misrepresentation without referring approvingly to Hedley Byrne. Quotations from the speeches of the Law Lords who decided Hedley Byrne are common. However, it is the fact that the House of Lords recognised a cause of action for negligent misrepresentation, not how it justified and defined it in Hedley Byrne that has made the impact. The judicial reasoning in the case has actually had little apparent influence in Canada. Despite the numerous references to, and applications of, Hedley Byrne, there has not been a single decision of the Supreme Court in which the Court has considered reflectively the core justification for the duty of care in negligent misrepresentation. It is often difficult to determine whether the Supreme Court was endorsing a voluntary assumption of responsibility test,8 a known or foreseeable reliance test,9 or a combination of both.10 In Queen v Cognos, Iacobucci J referred to a debate about which of ‘assumption of responsibility’ or ‘reasonable reliance’ should be the touchstone of duty. He dismissed the question as ‘academic’ and irrelevant on the facts before him.11 Like most of the Supreme Court decisions that proceeded Cognos, the facts seemed to satisfy either approach. Whether as a matter of 6 See B Feldthusen, ‘Kamloops v Nielsen: A Comment on the Supreme Court’s Modest Clarification of Colonial Tort Law’ (1985) 30 McGill Law Journal 558. 7 See, eg, the dissenting judgment of LaForest J in Canadian National Railway Co v Norsk Pacific Steamship Co [1992] 1 SCR 1021, eventually adopted by the court in Bow Valley Husky (Bermuda) Ltd v Saint John Shipbuilding Ltd [1997] 3 SCR 1210, Winnipeg Condominium (n 4) and Hercules (n 4). The notable exception is the Supreme Court’s continuing to this day to follow Anns (n 3). 8 The earlier decisions seemed to prefer the voluntary assumption of responsibility approach, but this usually happened without reflection, or much discussion. See, eg, Welbridge Holdings (n 4); Nunes Diamonds (n 4) per Spence J (dissenting), citing John Fleming, The Law of Torts, 4th edn (Sydney, Law Book Co, 1971) 564; Hodgins (n 4); Carman Construction (n 4) and Central Trust v Rafuse (n 4). 9 See, eg, Haig (n 4); Mason Construction (n 4) and Fletcher (n 4). 10 See, eg, Edgeworth Construction (n 4) and Queen v Cognos (n 4). These cases seemed to use both approaches indiscriminately but they never considered, let alone decided, that both were necessary. 11 Queen v Cognos (n 4). Interestingly, Iacobucci J was a former academic, a law professor and dean.

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principle or policy one approach was superior to the other, or whether both were necessary, are questions that have never interested the Supreme Court. It follows that much of the reasoning in Hedley Byrne has been of no interest either. The question that has preoccupied the Supreme Court concerns the ambit of the duty of care; that is, assuming the defendant owes some duty, to whom does the duty extend and for what losses?12 This was not a live issue in Hedley Byrne itself, but what little was said on this question was relied upon in Haig v Bamford13 and BDC v Hofstrand Farms.14 In those cases, the ‘to whom/for what’ question was apparently considered in the context of defining proximity between the parties. However, all this changed in Hercules Management v Ernst & Young.15 Today, Hercules has eclipsed all the Supreme Court decisions that preceded it and stands as the leading authority on negligence misrepresentation in Canada.16 The question in Hercules was the familiar one of who was entitled to rely on negligently prepared auditing statements and for what purpose. Beyond misrepresentation, Hercules is noteworthy for firmly entrenching in Canada the so-called ‘Anns test’ or framework for recognising new duties of care.17 The first step is to establish a prima facie duty of care based on sufficient proximity between the parties. The Court in Hercules adopted foreseeable reasonable reliance as the proximity test—the sole requirement for establishing the defendant’s prima facie duty of care.18 In so doing, it completely ignored the significance of an assumption of responsibility, so central to the decision in Hedley Byrne. The Hedley Byrne justification for duty is a combination of the plaintiff ’s known,19 reasonable, detrimental reliance, and the defendant’s assumption of responsibility. The first explains why the plaintiff has an interest worth protecting in negligence. The second explains why the defendant may be called to account for the plaintiff ’s loss. Both are necessary.20 Later I will suggest that ‘foreseeable’ reasonable reliance is the proper test in the context of a proper duty analysis. However, it will be argued that imposing a duty of care based solely on the plaintiff ’s foreseeable reasonable reliance is simply wrong. The Court in Hercules then deliberately divorced the ‘to whom/for what’ issue from the proximity inquiry. The Court preferred to deal with it as a matter of 12

See especially Hercules (n 4). See also Haig (n 4) and Hofstrand (n 4). Haig (n 4). 14 Hofstrand (n 4). 15 Hercules (n 4). 16 The only subsequent Supreme Court decision in which the law of negligent misrepresentation was considered is Imperial Tobacco (n 4). The Court accepted the Hercules test for duty of care without reflection. See Section IV below. 17 The ‘Anns (n 3) two-step approach’ was adopted first in Kamloops (n 4) and the approach has often been referred to since as the ‘Anns/Kamloops approach’. It was revitalised in Cooper v Hobart [2001] 3 SCR 537 and is now often referred to as the ‘Anns/Cooper approach’. The ‘Anns two-step approach’ was central to the decisions in Hercules (n 4) and Imperial Tobacco (n 4). 18 Hercules (n 4) [24]. 19 Some Law Lords might have supported reliance about which the defendant ought to have known. I will suggest later that if the duty is derived from the defendant’s intention, as it ought to be, then foreseeable reliance is the proper test. 20 See Section V below. 13

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policy at Step Two of the Anns framework.21 This too is wrong. ‘To whom/for what’ is a classic proximity question. Although one might take issue with her describing proximity as a ‘policy’ question, McLachlan CJC was surely correct to identify proximity questions at Step One of the Anns test as concerned with questions of the relationship between the parties.22 If addressed properly, such a proximity analysis usually renders a policy concern about indeterminate liability irrelevant.23 Instead, the Court was forced to devote its attention to the question of indeterminacy that the Court itself had created with the overly broad foreseeable reasonable reliance test of proximity. One of the key points I will try to make in this chapter is that the Supreme Court ought to jettison the approach developed in Hercules. A return to the core principles developed in Hedley Byrne would be a good place to begin a new discussion of duty of care in misrepresentation. It might also be a good place to end it. In particular, the Supreme Court should acknowledge the importance of an additional requirement that recognises the significance of the defendant’s role in creating the duty. Negligent misrepresentation aside, Hedley Byrne has been influential in other aspects of Canadian private law. Again, this influence has had little to do with the doctrine articulated in the speeches of the Law Lords. Rather, the general impact of Hedley Byrne derived from the simple fact that the House of Lords had recognised a cause of action for negligent misrepresentation causing economic loss. This played a catalytic role in the development of the law governing the recovery of pure economic loss in other, different types of negligence case, notably the relational loss cases and the product/structure defect cases.24 These will be discussed at the end of the chapter, after the misrepresentation discussion. The new action for negligent misrepresentation also led indirectly, if not inevitably, to concurrent liability in tort and contract and the effective undercutting of many sensible rules of contract law.25 Neither of these developments has been positive in Canadian law. For this, the Law Lords in Hedley Byrne are not to blame.

II. Negligent Misstatement in Canada— Hercules Management Ltd v Ernst & Young Despite extensive consideration of negligent misrepresentation in the Supreme Court of Canada over the years, today one need refer to one case only—Hercules 21

Hercules (n 4) [23]. Cooper v Hobart (n 17) [31]–[36]. 23 See Edgeworth Construction (n 4). See also Section IV below. 24 See Section III below. 25 One example is the defective structure rule in Winnipeg Condominium (n 4), discussed in Section VIB below. Another is the difficulty of contracting out of a pre-contractual misrepresentation. See, eg, Checo (n 4). This is a major topic in its own right and it cannot be developed fully here. 22

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Management Ltd v Ernst & Young.26 Much of what went before Hercules was superficial. The Court deliberately abandoned most of it in Hercules. It also abandoned Hedley Byrne. Since then, there has been only one other Supreme Court decision of substance dealing with negligent misrepresentation, the Imperial Tobacco case. There, the Court adopted and applied Hercules unreflectively, except for some special consideration of public authority immunity at Step Two of the Anns framework.27 The defendant in Hercules was a national accounting firm hired by corporate management to prepare audited financial statements required by statute. The plaintiffs were shareholders who claimed that the statements had been negligently prepared. They claimed that, in reliance on the statements, they had suffered losses on additional investments in the corporation that they were induced to make and losses from devaluation of their pre-existing holdings. The facts are similar to those in the leading UK decision, Caparo Industries Plc v Dickman28 and the leading Australian decision, Esanda Finance Corporation Ltd v Peat Marwick Hungerfords.29 In all three of those cases, the plaintiffs’ action failed. In all three cases, the action failed because the loss was not incurred within the ambit of the purpose for which the statements were prepared; a violation of what may be called the ‘end and aim’ rule.30 In Hercules the Court held that the statements were prepared to assist the shareholders in guiding the corporation, not to assist them in making private investments. Notwithstanding these similarities, the reasoning in Hercules is deliberately and fundamentally different from that in Caparo and Esanda.31 The judgment of the Hercules Court was given by LaForest J. The recovery of economic loss in negligence seems to have been of particular interest to him. He left his mark on three leading economic loss decisions during the 1990s, each of which remains the law today. The first was his dissenting judgment in CNR v Norsk Steamship, which dealt with relational economic loss.32 In Norsk he argued unsuccessfully for a firm exclusionary rule for relational economic loss, subject to a few specific exceptions. The Supreme Court effectively reversed itself and adopted LaForest J’s dissenting judgment in its 1997 decision in Bow Valley Huskey (Bermuda) Ltd v St John Shipbuilding Ltd.33 Second, speaking for the Court in 1995 in Winnipeg Condominium Corporation No 36 v Bird Construction Co, he held that a building owner could sue a non-privity builder in negligence to recover the cost of removing dangerous structural defects.34 This decision is at odds with the law 26

Hercules (n 4). Anns (n 3). 28 Caparo Industries Plc v Dickman [1990] 2 AC 605 (HL) (‘Caparo’). 29 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 142 ALR 750 (HCA) (‘Esanda’). 30 This phrase was used by Cardozo J in Glanzer v Shepard, 135 NE 275 (NYCA 1922) and cited with approval in Hercules (n 4) [38]. 31 See Hercules (n 4) [27]–[28]. 32 CNR v Norsk (n 7), discussed in Section VI below. 33 Bow Valley (n 7). 34 Winnipeg Condominium (n 4) discussed in Section VI below. 27

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in the United Kingdom35 and the United States,36 and quite controversial. Finally, there was the 1977 misrepresentation decision in Hercules. Of the three, Hercules is the most obviously wrongly decided and the least frequently criticised. One of the most significant aspects of the Hercules decision is the critical role played by the House of Lords’ decision in Anns v London Merton Borough Council.37 Although abandoned in the United Kingdom, Anns continues to be enthusiastically followed by the Canadian Supreme Court. It was, for example, relied upon as a direct precedent for recovery in Winnipeg Condominium.38 Anns was also influential in introducing the concept of public authority immunity to Canada.39 Of particular significance for negligence law generally and Hercules in particular, Canada has adhered religiously to the Anns two-step template for evaluating the case for novel duties of care:40 First one has to ask whether, as between the alleged wrongdoer and the person who has suffered damage there is a sufficient relationship of proximity or neighbourhood such that, in the reasonable contemplation of the former, carelessness on his part may be likely to cause damage to the latter—in which case a prima facie duty of care arises. Secondly, if the first question is answered affirmatively, it is necessary to consider whether there are any considerations which ought to negative, or to reduce or limit the scope of the duty or the class of person to whom it is owed or the damages to which a breach of it may give rise.

The Court’s commitment to the Anns approach to duty of care turned out to be determinative in Hercules.41 Consistently with Anns itself, LaForest J regarded it as crucial that the same general framework be applied to all negligence claims.42 Following Professor Stapleton, he did not want to create a pocket of negligence claims for misrepresentation where the duty is justified differently.43

35 Hercules (n 4). He deliberately chose to follow Anns (n 3) and declined to follow D & F Estates Ltd v Church Commissioners for England and Wales [1989] AC 177 (HL) and Murphy v Brentwood District Council [1991] 1 AC 398 (HL). 36 The leading authority is East River Steamship Co v Transamerica Delaval Inc 476 US 858 (1986) (product liability). 37 Anns (n 3). 38 Winnipeg Condominium (n 4). 39 Although in Imperial Tobacco (n 4) the Court distanced itself from the broad scope of immunity apparently favoured in Anns (n 3), Anns was a leading authority in introducing the idea of public authority immunity into Commonwealth negligence law. 40 Anns (n 3) 751–52. 41 It is striking that Lord Wilberforce identified reliance as the Step Two, policy tool used in Hedley Byrne to limit the class of potential plaintiffs. See Anns (n 3) 751–52. 42 This is somewhat odd given that it was LaForest J who had made it clear in his earlier decisions in Norsk (n 7) and Winnipeg Condominium (n 4) that the courts must distinguish among different types of claims for pure economic loss, and not generalise from one type to another. Negligent misrepresentation was recognised as a distinct type of claim. I would argue that emphasising these distinctions was LaForest J’s greatest contribution to economic loss tort law. 43 Hercules (n 4) [21]: ‘Indeed, to create a “pocket” of negligent misrepresentation cases (to use Professor Stapleton’s term) in which the existence of a duty of care is determined differently from other negligence cases would, in my view, be incorrect; see: Jane Stapleton, “Duty of Care and Economic Loss: a Wider Agenda” (1991) 107 LQ Rev 249’.

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The Anns generalist approach to negligence law is different from the attempt in Donoghue v Stevenson to justify all negligence law with a single principle. The paradigmatic negligence action generally associated with Donoghue v Stevenson involves physical harm to person or property. The degree of proximity necessary to found a duty of care in such a case is derived from foreseeable harm to a foreseeable plaintiff—the neighbour principle. Professor Beever would say that the relevant harm (or injury) must be the foreseeable violation of a primary right, either the right to personal security, or a property right.44 He would see the law’s search for a foreseeable, unreasonable risk to a plaintiff ’s primary rights as the unifying principle of negligence law. Anns dictates a common, two-step approach with which to approach any negligence claim. This includes claims for economic loss, and actions for negligent misrepresentation. Lord Wilberforce credited the decision in Hedley Byrne for the development of his unified approach. Anns requires, at Step One, a sufficient degree of proximity to justify imposing a prima facie duty of care. It is unclear whether Lord Wilberforce intended to adopt double foreseeability from Donoghue v Stevenson as the sole test for proximity. If so, the majority of negligence cases outside the paradigm would have to be decided with reference to Step Two. Step Two is an open invitation to introduce ‘policy’ arguments to refute the prima facie duty. According to Professor Beever, Professor Stapleton has identified 50 different judicial policy arguments, 29 of which she regarded as legitimate.45 So much for a unified approach! If LaForest J had wanted to avoid little pockets of negligence law where the duty is created differently he would have had to reject Anns, not follow it. That is only part of the story. The generalist or unifying aspirations of Anns unravel even at Step One. Foreseeable harm is not a sufficient justification for even prima facie liability in every case. It does provide a justification when interferences with primary rights associated with physical harm are involved. However, it will be argued that the foreseeability of economic loss alone does not justify a prima facie duty of care for economic loss in cases of misrepresentation, relational loss or product/structure defect loss.46 Nothing in moral philosophy supports such a principle, and nothing in generally accepted positive law suggests it either. This leaves two choices in a misrepresentation case. The court can conclude that there is no liability for misrepresentation in negligence. This is Beever’s conclusion, at least so far as economic loss is concerned.47 As explained below, he recognises 44

A Beever, Rediscovering the Law of Negligence (Oxford, Hart Publishing, 2007) 211. ibid 171. He also notes that Professor Stapleton is not a proponent of the Anns approach. 46 Beever (n 44). See also Section VI below. 47 Beever (n 44) would recognise liability under the Hedley Byrne principle for both physical and economic harm, but he would not regard it as liability in negligence. There are, however, instances where a plaintiff ’s reasonable reliance on the defendant causes physical harm that is also governed by the Donoghue v Stevenson principle. Donoghue (n 2) itself is such an example. See SR Perry, ‘Protected Interests and Undertakings in the Law of Negligence’ (1992) 42 University of Toronto Law Journal 247, 288–90. The theorists cited in this chapter do not support liability for economic loss via Donoghue v Stevenson. 45

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liability for misrepresentation based on the basic principles of Hedley Byrne, but concludes that the cause of action is not negligence. The more traditional choice is to enrich the negligence definition of proximity to include foreseeability, but to add other requirements in particular types of cases. This is the clear Canadian choice,48 and it is reflected in Hercules. Again, this generates a series of distinct pockets of negligence law. LaForest J’s problem in Hercules was that the case for a duty of care in misrepresentation is fundamentally different from the basic Donoghue v Stevenson duty. He recognised at least one key antecedent difference of principle—a misstatement does not harm anyone directly. Harm only occurs if the plaintiff 49 relies on the statement to his or her detriment. Therefore, for the purposes of Step One of the Anns approach, LaForest J had to recognise a unique definition of proximity in negligent misrepresentation. So far, so good. The error was that he chose ‘foreseeable reasonable reliance’, which will be revealed below as demonstrably incomplete. The next dilemma for LaForest J was that foreseeable reasonable reliance looks exactly like the special pocket of negligence duty that he wanted to avoid. LaForest J tried to have his cake and eat it too. He explained that the existence of the paradigmatic duty to avoid foreseeable harm to a foreseeable plaintiff in physical damage claims was also grounded on reasonable reliance.50 For present purposes it

48 See also, eg, Hofstrand (n 4); Haig (n 4); CNR v Norsk (n 7) in which the judges disagree over with what to enrich foreseeability; Childs v Desormeaux [2006] 1 SCR 643 [12] and Cooper v Hobart (n 17). This is effectively criticised by EJ Weinrib, ‘The Disintegration of Duty’ (2006) 31 Advocates’ Quarterly 212, especially at n 50, 238, 244–45. The basic problem is that it renders any conception of proximity in negligence other than the neighbour principle based on foreseeable harm to person or property totally open ended, to the point of being meaningless. It is fair to question whether the duty formulation in misrepresentation—intended, invited or induced detrimental reliance—ought to be described in proximity terms at all, or simply as the basis for a duty of care in misrepresentation. Stuck with the present Canadian proximity approach as I am, I nevertheless have some sympathy for Beever’s view that the misrepresentation duty is not part of negligence law at all. 49 There are cases imposing liability in negligence in which a third party relies on the defendant to the detriment of the plaintiff. For the rights-based theorists, these are not negligent misrepresentation cases as defined in Hedley Byrne. The key to the Hedley Byrne principle is an assumption of responsibility, directly or indirectly, to the plaintiff. One example of the third-party case would be a negligent credit reference. See Haskett v Trans Union of Canada Inc (2003) 63 OR (3d) 577 (CA), leave to appeal denied (2003) 194 OAC 400. Another would be a negligent employment reference. See Spring v Guardian Assurance Plc [1995] 2 AC 296 (HL). It could be argued that every employee relies on the employer for a carefully prepared reference. This is not the same type of transaction-specific reliance as required in Hedley Byrne. Cases that do not fit the Hedley Byrne paradigm would have to be justified under Donoghue v Stevenson (n 2), or on yet again another principle. The rights-based theorists would presumably argue that economic loss should not be recoverable under the Donoghue v Stevenson duty. Possibly a duty regarding the reference might be developed through the notion of a ‘special relationship’ or an implied term of the employment contract. See Beever (n 44) 347–50. 50 Hercules (n 4) [25]: ‘In the context of actions based on negligence causing physical damage, determining whether harm to the plaintiff was reasonably foreseeable to the defendant is alone a sufficient criterion for deciding proximity or neighbourhood under the first branch of the Anns/Kamloops test because the law has come to recognise (even if only implicitly) that, absent a voluntary assumption of risk by him or her, it is always reasonable for a plaintiff to expect that a defendant will take reasonable care of the plaintiff ’s person and property’.

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suffices to describe the attempt to justify all basic physical damage negligence law on the basis of reasonable reliance as strained and unconvincing.51 LaForest J based proximity on foreseeable reasonable reliance. This is a departure from Hedley Byrne, where all the Law Lords spoke of known reasonable reliance.52 The choice of foreseeability over knowledge is appropriate and consistent with his desire to promote a single conception of negligence law. In combination with some consideration of the defendant’s role in inducing the reliance, foreseeable reliance works well. However, relying on foreseeable reliance alone created an unnecessary practical problem. The defendants were a reputable national accounting firm, hired by a reputable company. It was therefore foreseeable that anyone who would foreseeably see the accounts could reasonably rely on their having been prepared with due care.53 By this I mean rely in fact.54 The Court in Hercules created the classic, practical problem of potentially indeterminate liability. Again, LaForest J was well aware of this. He deliberately chose to deal with indeterminate liability at Step Two of the Anns test. For LaForest J, foreseeable reasonable reliance raised only a practical problem, not a problem of principle. Implicitly, he adopted Professor Stapleton’s view that the only difference between claims for physical damage and claims for economic loss was that the latter tended to pose the problem of potentially indeterminate liability.55 The criticism of the Hercules decision that follows entails a rejection of that claim. Liability for negligent misrepresentation is fundamentally different from liability for physical damage under the Donoghue v Stevenson principle.56 LaForest J chose to limit the ambit of liability to losses suffered when the plaintiff relied on the information ‘for precisely the purpose or transaction for which it was prepared’.57 This may be conveniently described as the ‘end and aim’ rule. In

51 See Perry (n 47) 287–90. The author explains that some physical damage cases might be explained as based jointly on the defendant’s undertaking and the plaintiff ’s foreseeable reliance. This is how Perry would explain negligent misrepresentation. 52 Hedley Byrne (n 1) 486 (Lord Reid), 503 (Lord Morris), 514 (Lord Hodson), 538 (Lord Pearce). Indeed, a case can be made that they spoke of situations where the defendant ought to have known the plaintiff is relying. Regardless, I argue below that knowledge, actual or constructive, is an insufficient basis for a duty of care. 53 This included the shareholders in Hercules (n 4) [44]. It is possible to imagine a broader class of permissible plaintiffs. 54 It is possible to define the relevant type of reliance upon which to found a duty as reasonable reliance that the defendant had intended, invited or induced the plaintiff to rely in fact. This is a rather awkward way in which to say indirectly that the defendant had intended, invited or induced the plaintiff to rely in fact. It is not how LaForest J was using the reliance concept in Hercules. 55 Stapleton (n 43) 253. LaForest J’s reasoning and decision reflect this view perfectly. This general line of thought persists in the Supreme Court today. See especially Cooper v Hobart (n 17) [27]. For the strongest rejection of this point of view, see Beever (n 44) ch 8. The author would not consider the misrepresentation action to be a part of negligence law. See also the compelling arguments in Perry (n 47) and P Benson, ‘The Problem with Pure Economic Loss’ (2009) 60 South Carolina Law Review 823. 56 As discussed in Section VI below, the issues in misrepresentation are also different from the issues in the relational loss claims and the defective product/structure claims. 57 Hercules (n 4) [46].

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doing so, he relied on the decisions in Glanzer v Shepard,58 Hedley Byrne v Heller,59 Haig v Bamford60 and Caparo v Dickman.61 However, in each of these decisions the ‘end and aim’ rule was not invoked to address a practical problem of indeterminate liability. It was invoked to define the circumstances under which, as a matter of principle, it was just to recognise the duty of care.62 It was invoked as part of the proximity analysis. And it was invoked in the context of judicial recognition that unilateral reliance by the plaintiff was insufficient to justify imposing a duty on the defendant. These cases and others illustrate that if one defines proximity properly as a matter of principle, it is unnecessary to deal with potentially indeterminate liability as a matter of policy.63 In fairness to LaForest J, he did not consider proximity to be a particularly useful concept.64 A proximity definition that depends on the plaintiff ’s reliance alone poses more than a practical problem. It is simply wrong as a matter of principle. It would be equally objectionable to define proximity in terms of known reasonable reliance instead of foreseeable reasonable reliance. It would be equally wrong to define proximity in terms of known reasonable reliance by members of a known limited class.65 These reformulations might make the exposure more determinate, but not more just. It is incorrect in principle to hold the defendant legally responsible for losses suffered by relying on the defendant in a case like Hercules, for two reasons. First, neither the positive law nor philosophers recognise purely economic primary rights. The rights that do exist in relation to purely economic interests are those derived from the generally accepted primary rights.66 This does not, in my opinion, determine conclusively whether economic loss should ever be recoverable in negligence. I would accept a weaker proposition that it should not be recoverable under the paradigmatic Donoghue v Stevenson neighbour principle. Second, the plaintiff has no right to rely on the defendant without the defendant objectively manifesting an intention that he or she do so. This is more important to the duty question than whether the loss is purely economic. These points are elaborated upon next.

58

Glanzer (n 30). Hedley Byrne (n 1). 60 Haig (n 4). 61 Caparo (n 28). 62 LaForest J acknowledged that this was so for Hedley Byrne, Haig and Caparo. See Hercules (n 4) [27]–[28]. As for Glanzer, see Perry (n 47) 282, quoting Cardozo J in Glanzer (n 30): ‘The controlling circumstance is not the character of the consequence, but its proximity or remoteness in the thought and purpose of the actor’. See also Weinrib (n 48) 240–42. 63 See also Esanda (n 29). 64 Hercules (n 4) [23]. 65 This was the rule from Haig (n 4). In Hercules, LaForest disagreed, but again on practical grounds. 66 Beever (n 44) 212: primary rights are to be distinguished from secondary rights. ‘A primary right is a right possessed by virtue of the substantive law and includes the right to the performance of a contract, to property, to bodily integrity, and to reputation. It is the task of legal actions to protect and enforce these rights’. 59

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III. The Defendant Must Intend the Plaintiff to Rely— The Assumption of Responsibility Requirement In this section I want to argue that the plaintiff ’s reasonable reliance alone is insufficient to ground a duty of care in misrepresentation. I want to establish that the defendant must, in addition, intend for the plaintiff to rely on the representation.67 I will try to relate this argument to the ‘assumption of responsibility’ test. The defendant’s intention will usually need to be determined by an objective test. Evidence that the defendant invited or induced the plaintiff to rely would constitute excellent objective evidence of intention. I will occasionally refer to ‘intend, induce or invite reliance’ as the basis of the duty, but the core concept is objectively determined intention. Professor Brown, citing Professor Perry, speaks of ‘a general, objective manifestation of an “intention to induce another person to believe that he or she may rely” on the undertaker to act (or refrain from acting) in a certain way’.68 In contrast, proof that the defendant knew or ought to have known that the plaintiff would rely should be insufficient to ground the duty of care. Knowing that someone intends to rely is different than intending that they do so. To support the requirement that the defendant intend the plaintiff to rely I will refer mainly to three rights-based torts theorists; Professor Allan Beever,69 Professor Stephen Perry,70 and Professor Peter Benson.71 Not coincidentally, each has studied law at the University of Toronto and each has been influenced by Professor Ernest Weinrib, upon whom I also rely.72 In so doing, I do not wish to endorse the full implications of the rights-based approach to negligence law in preference to other approaches.73 It is not necessary to do so for present purposes. For example, it is critical to a rights-based negligence theorist that the courts should not employ negligence law to effect distributional policy outcomes, including entertaining policy arguments at either step of the Anns approach. This belief is not critical to the points I wish to make about negligent misrepresentation. The reason I rely on the rights-based theorists here is simply because they have done an excellent job explaining why the defendant must play an active role in creating the duty of care

67 This is and has been for years the clear test adopted in the Restatement (Second) of Torts. It is repeated in the forthcoming version, Restatement (Third) of Torts: Liability for Economic Harm. See n 83 below. 68 R Brown, ‘Assumption of Responsibility and Loss of Bargain in Tort Law’ (2006) 29 Dalhousie Law Journal 345, citing Perry (n 47) 282. 69 Beever (n 44). 70 Perry (n 47). 71 Benson (n 55) and see also Peter Benson, ‘Misfeasance as an Organizing Normative Idea in Private Law’ (2010) 60 University of Toronto Law Journal 731. 72 See especially Weinrib (n 48). 73 Reservations about some aspects of the rights-based approach, notably circularity, conservatism and a need for greater attention to the content of the relevant rights are expressed in Section VI below.

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in misrepresentation, and why unilateral reliance by the plaintiff ought not to be sufficient to found a duty of care. The rights-based approach to misrepresentation depends, first, on the distinction between the primary rights to personal integrity and property, on the one hand, and purely economic interests, on the other. Beever, for example, would argue that negligence law is best understood as a vehicle with which to develop legal principles about what consititutes a violation to personal integrity or property rights, and how to correct it.74 He identifies personal integrity and property rights as exclusively worthy of protection in negligence because these are primary rights75 that are recognised in the positive law.76 Others have informed us about the content of such rights by relying on moral philosophers.77 This rights base of the law of negligence is grounded in corrective justice and not in distributive justice. This means that it is plausable to hold that property rights and rights to the person, such as bodily integrity, are founded on a conception of interpersonal morality— on a view of how persons should treat each other as individuals.78

In contrast, a citizen does not enjoy a primary right to be free from pure economic loss. This leads the rights-based theorists to argue that one should not owe a duty of care to avoid causing foreseeable economic loss under the paradigmatic application of the neighbour principle. They will instead support recovery on a different principle, discussed next. Most would speak of a duty in negligence based on an assumption of responsibility, distinct from the Donoghue v Stevenson duty. Beever would agree with the distinct basis of the duty, but go further and argue that this route should not be considered an action in negligence.79 Admittedly, there is a certain circularity in saying one cannot recover pure economic loss in negligence because one does not have a property right to uninterrupted economic security.80 But the position has substance. Our market system encourages parties to take economic advantage of one another. The law must consider carefully the circumstances that caused the economic loss. Conduct causing purely economic harm may be sanctioned by criminal and regulatory law. The intentional infliction of economic harm is governed by a series of well-recognised

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Beever (n 44) 61. ibid 25. 76 ibid 64, 211–19. 77 See, eg, EJ Weinrib, The Idea of Private Law (Cambridge, Mass, Harvard University Press, 1995) ch 4, referencing Kant. 78 Beever (n 44) 69. 79 ibid. I would argue that the Hedley Byrne principle is indifferent to whether the loss is physical or economic. See the text to nn 122, 123 below. 80 When I say ‘in negligence’, I mean under the neighbour principle grounded in foreseeability that applies to personal injury and property damage. A similar criticism is described by N McBride as the vice of ‘reductionism about rights’ in ‘Rights and the Basis of Tort Law’ in D Nolan and A Robertson (eds), Rights and Private Law (Oxford, Hart Publishing, 2012) 331. This interesting criticism of the rights-based theorists upon whom I rely is discussed further below in Section VI with respect to different claims for pure economic loss. I do not believe McBride would take issue with the requirement that the defendant intend the plaintiff to rely, although he might arrive at that conclusion differently. 75

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intentional economic torts, including deceit. The rights-based theorists’ concern is with imposing liability for inadvertent conduct that causes foreseeable economic harm.81 Such an extensive obligation would upset the moral accommodation that Western societies support between free trade on the one hand, and duties of protection on the other.82 More significant than the purely economic nature of the harm is the fact that the defendant’s words alone do not harm the plaintiff. The plaintiff ’s own decision to act in reliance is a necessary cause of the harm. Hercules suggests that recovery is justified, at least prima facie, when the plaintiff unilaterally, by choosing to rely on the defendant, creates an obligation owed by the defendant. But why does the plaintiff ’s unilateral decision to rely create an obligation on the part of the defendant? A right unilaterally to rely on receiving assistance from another is not grounded in philosophy, nor in generally accepted positive law elsewhere in the Commonwealth or in the United States.83 Instead, one generally secures the right to rely on another by contract. It may arise from a recognised special relationship, including one in which there is an inherent power imbalance between the parties. One may also secure it by the defendant’s undertaking. This is where Hedley Byrne fits in. Circumstances may permit the plaintiff to rely in fact, and it may be quite reasonable to do so. So it was in Hercules. But the plaintiff has no right to legal protection from the consequences of his or her own detrimental reliance unless the defendant intended that the plaintiff so rely. Even in analogous situations

81 This point is made by Lord Pearce in Hedley Byrne (n 1) in the text following n 288. I am not sure that a rights-based approach is the only route to this conclusion. The similarities among the rightsbased approach and other standard doctrinal approaches are noted below in Section VIA. 82 I am grateful for Professor Kit Barker’s comments on this point when he reviewed an earlier draft of this chapter. 83 There is a new American Law Institute project, Restatement (Third) of Torts: Liability for Economic Harm, currently underway. The Reporter is Dean Ward Farnsworth. Unless otherwise stated, all references herein are to the preliminary draft of February 2012. The drafts are unlikely to be modified in any major way, and give a good indication of the prevailing majority opinion about the current state of the law in most of the US. §5 (‘Negligent Misrepresentation’) states in part:

(2)

Except as stated in Subsection (3), the liability stated in Subsection (1) is limited to loss suffered (a) by the person or one of a limited group of persons for whose guidance the actor intends to supply the information, or for whose guidance he knows the recipient intends to supply it; and (b) through reliance upon the information in a transaction that the actor intends to influence (emphasis added), or that he knows the recipient intends to influence, or in a substantially similar transaction.

The general theory of liability is the same under both Sections. A plaintiff ’s reliance alone, even if foreseeable, is not a sufficient basis for recovery; under either Section a defendant generally must act with the apparent purpose of providing a basis for the reliance. It may be useful to say that a defendant held liable under either Section must ‘invite reliance’ by the plaintiff, so long as the expression is understood to refer to the defendant’s apparent purpose and not to a temptation incidentally created by the defendant’s words or acts.

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involving attempts to impose liability for nonfeasance in failing to protect a plaintiff from independently caused physical harm, the law does not go so far.84 The defendant must do something that can be interpreted objectively as manifesting an intention that the plaintiff rely.85 Stephen Perry gives the following example:86 Immanuel Kant might have known or been able to foresee that some citizen of Konigsberg would set his own schedule on the basis of Kant’s notoriously regular daily walks, but this does not mean that Kant had any obligation either to stick to his usual time or, if he did not, to ensure that such a citizen was not late for his appointments. Matters would stand differently, however, if Kant had told the citizen that he could rely on Kant in this respect.

Beever would say that the plaintiff ’s right to rely on the statement must be created by the defendant.87 One could ground the right in the defendant’s consent. Perry would say that by intending, inducing or inviting the plaintiff to rely to his or her detriment the defendant has interfered with the plaintiff ’s interest in his or her autonomy.88 To impose a duty of care, even a prima facie duty of care, in the absence of the defendant objectively manifesting an intention that the plaintiff rely would permit the plaintiff to interfere with the autonomy of the defendant to advance the defendant’s own economic interests. Hercules effectively allows a plaintiff to appropriate the defendant’s commercially valuable expertise without the defendant’s consent. A word about knowledge may be in order. If the defendant knows that the plaintiff intends to rely on his or her representation, this may be useful evidence on the question of whether one may infer an intention that the plaintiff rely. Certainly, if the defendant did not know and ought not to have reasonably known that the plaintiff intended to rely, it would be difficult to find an intention that the plaintiff do so. But knowing that the plaintiff is relying, without more, ought not to establish the duty. This is the Kant example above. This can be a fine line and it is important to consider it carefully. Consider what Lord Reid said in Hedley Byrne:89 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

84 See Beever (n 44) 217–21 where the author explains the meaningful difference between misfeasance and nonfeasance. Failing to rescue (where one has not caused the peril or made it worse by inducing detrimental reliance) does not injure the plaintiff ’s primary right to personal security; it merely fails to better it. Beever notes the similarities to the misrepresentation analysis. See also Benson (n 71). 85 See Perry (n 47) 279–86; Benson (n 55) 862–63. 86 Perry (n 47) 285. 87 Beever (n 44) 282–84. 88 Perry (n 47) 250. 89 Hedley Byrne (n 1) 486.

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inquirer 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 inquiry 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 inquirer which requires him to exercise such care as the circumstances require.

If Lord Reid meant to say that the defendant’s knowledge or constructive knowledge alone would support the duty of care, I would argue that he was wrong. However, it is important to note that he was speaking about a request by the plaintiff to the defendant for information or advice. It is reasonable to infer an intention that the plaintiff rely when the defendant replies to the inquiry knowing he or she is being relied upon. If Kant has no interaction with the citizen he knows is relying on him, he does not owe a duty of care. The same is true of Lord Reid’s ‘reasonable man’ who keeps silent. Kant might well owe a duty if the citizen asks if he will come by at the same time tomorrow and Kant, knowing the citizen is relying, says ‘yes’. The need for the defendant to intend that the plaintiff rely, not the purely economic nature of the loss, is the key point to proper misrepresentation analysis.90 This is why any conception of proximity in misrepresentation that does not take into account the role of the defendant in creating a nexus between the parties is wrong. It is not wrong because it creates potentially indeterminate liability, as Hercules would have it. It is wrong because the plaintiff ’s right to claim damages must derive from conduct of the defendant directed to the plaintiff. The final question is: when an objective test determines that the defendant intended the plaintiff to rely, is it accurate and convenient to speak of liability being based on an assumption of responsibility? This is the best explanation of the justification for a duty of care developed in Hedley Byrne, and in particular for the failure of the claim because the defendant had expressly declined to assume liability.91 There is nothing in Hedley Byrne that is clearly inconsistent with the intention approach, but of course it was unnecessary to define assumption of responsibility exhaustively in the case itself. The rights-based theorists do define

90

See the text to nn 122, 123 below. For examples of cases and authors supporting this conclusion see B Feldthusen, Economic Negligence, 6th edn (Toronto, Carswell, 2012) 37–43. As noted in n 8 above, the earlier decisions of the SCC interpreted and applied Hedley Byrne based on an assumption of responsibility approach. See also Beever (n 44) 316 and Perry (n 47) 271, 286. 91

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an assumption of responsibility as the defendant’s intention to induce the plaintiff to rely on him. Perry puts it this way:92 As is explained below, the paradigm of a Hedley Byrne-type case is one in which the defendant has an intention, or knows that his conduct could be taken as evincing an intention, to persuade the plaintiff that it is safe to rely on the defendant. Anyone who has such an intention or knowledge can sensibly be said to be voluntarily assuming a responsibility, even if he cannot be said, because he is not exercising a normative power, to be voluntarily placing himself under an obligation.

I prefer to eliminate the adjective ‘voluntary’ and to speak of a simple assumption of responsibility when the defendant knows or ought to have known that his or her conduct evidenced an intention that the plaintiff rely. There have been many thoughtful objections to the assumption of responsibility touchstone for duty of care in misrepresentation. Professor Kit Barker’s challenges are the best known.93 Barker describes the Hedley Byrne formulation as the ‘strong version’ of the assumption of responsibility approach. He concedes it works reasonably well in cases like Hedley Byrne, but believes it breaks down to impose duties in cases in which the relationship of the parties was indirect, where the defendant had disclaimed responsibility, or where the services or advice provided by her were in no meaningful sense ‘voluntary’ but rendered under a statutory obligation, or contract with a third party. His points have been challenged by Professor Beever, with whom I tend to agree.94 Statutory obligations are distinguishable—the legislature may impose what duties it wishes independent of the defendant’s intention.95 I have also had the opportunity to review earlier drafts of two, excellent chapters published in this volume: ‘The Assumption of Responsibility’ authored by Andrew Robertson and Julia Wang and ‘What Are We Doing Here? The Relationship between Negligence in General and Misstatements’ by Christian Witting. Like Barker, these authors seem to feel that the use of objective tests to determine what the defendant intended thereby debunks the assumption of responsibility approach. Certainly, a duty may arise where the defendant in fact did not intend to assume responsibility for its advice or information, let alone indicate expressly that it intended to be legally bound. The issue is whether the defendant’s conduct viewed objectively suggests that the defendant did assume such responsibility, that is, did intend the plaintiff to rely. I know of no judicial success in reading the minds of actors to determine subjective intention, so I fail to see how employing an objective test to determine a subjective intention undermines the quest for a subjective intention. Are contractual obligations assumed or imposed? How do we answer that question and why? What we really ought to care about is the impression created in the reasonable plaintiff ’s mind leading to detrimental reliance. This is the relevant wrong. 92

Perry (n 47) 286. K Barker, ‘Wielding Occam’s Razor: Pruning Strategies for Economic Loss’ (2006) 26 OJLS 289; ‘Unreliable Assumptions in the Modern Law of Negligence’ (1993) 109 LQR 461. 94 Beever (n 44) 304–10. 95 Assuming the case was correctly decided, overriding the disclaimer clause in Smith v Eric S Bush [1990] 1 AC 831 (HL) might be so explained. 93

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The authors demonstrate that there are many judicial decisions in the United Kingdom rendered subsequent to Hedley Byrne that are inconsistent with a voluntary assumption of responsibility approach. Some are not misrepresentation cases, others might be interpreted differently, and some may be wrongly decided. That said, these authors are much better positioned than I am to state the current doctrinal law in the United Kingdom. I am more interested in what the law ought to be than what the House of Lords has decided in various cases. Given that the Canadian courts have never given the matter any consideration, that field is open for me. Robertson and Wang emphasise that the case law illustrates that liability derives not from an assumption of responsibility, but from imposed obligations that emerge from certain, might we say, ‘special’, relationships. Witting would agree and perhaps go further. Certainly, the special relationships entailing imposed affirmative duties exist in Canadian tort law, whether one is talking about boat captains and passengers as the authors do, or doctors and patients, or teachers and students, or employers and employees, and so on. This ‘special relationship’ foundation for affirmative duties to control or assist others deserves its own detailed treatment. While the term ‘special relationship’ is prominent in Hedley Byrne itself, I would argue that the relationship-based approach is a different basis for liability from that actually supported by any of the Law Lords in Hedley Byrne, however ambiguous and sometimes contradictory their speeches admittedly were. The special relationship approach may offer an alternative basis for decision in some cases, as where an employer advises an employee about the pension plan evidencing an intention that the employee rely. It might be the only explanation for some Canadian negligent misrepresentation decisions, but very few. Like LaForest J in Hercules, Robertson, Wang and Witting conclude that the assumption of responsibility is not a distinctive category of obligation, but simply a variation of the basic neighbour principle. Obviously, for the reasons given throughout this chapter, I disagree. The relationship thesis ignores the actual holding in Hedley Byrne that no duty of care ever arose because the defendants indicated expressly that they declined to accept responsibility. The words ‘without responsibility’ were relevant to the absence of a duty of care, not disclaimers from an antecedent duty of care based on a proximate or special relationship. The difference between economic interests and property is much more than a ‘simple variation’. So too is the fundamental difference between an injury suffered directly and an injury suffered because the plaintiff chooses to rely on the defendant. Witting in particular seems to justify his conclusion by offering a definition of proximity that is unique to misrepresentation. He thereby concludes that misrepresentation law fits perfectly into the standard UK three-stage test for duty, comprising foreseeability, proximity and policy. If one concedes that anything whatsoever can constitute proximity, and that the factors chosen as suggesting proximity in misrepresentation are particular and quite different from the paradigmatic Donoghue v Stevenson approach, it is impossible to argue with Witting. However, it is difficult to see such an application of the so-called ‘three-part test’ as any test at all. It is a roadmap to guide an enquiry. Beever sees the differences

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between proximity in misrepresentation as sufficiently different from paradigmatic negligence claims to justify refusing to call misrepresentation claims ‘negligence claims’ at all. His is a radical exercise in labelling. In the end, Beever and Witting both agree that the basis of liability in misrepresentation in any concrete sense is different from the basis in a standard act/physical harm case. Dealing with the arguments against voluntary assumption of responsibility fully and fairly is beyond the scope of this chapter. It may be that the notion has become so contentious that we would be better to abandon it altogether. I would be content instead, as in the United States, simply to require the plaintiff to establish the defendant’s intention to have the plaintiff rely. As Jay Feinman’s chapter about the US law (also published in this volume) demonstrates, the intent approach also has its critics. At least there we can agree on what is being criticised. For present purposes, I am content with any principled approach that gives due deference to the need to derive the duty from the conduct of the defendant in some rational manner. All the speeches in Hedley Byrne seem to me to have done this.

IV. The ‘End and Aim Rule’96 and Indeterminate Liability Recall that in Hercules the Court held that foreseeable reasonable reliance was a sufficient test of proximity to found a prima facie duty of care. It is clear that LaForest did not define reasonable reliance as reliance grounded in what responsibilities the defendant had assumed.97 He was speaking of the plaintiff ’s reasonably relying on the information having been prepared with due care. That duty formulation created a potentially indeterminate ambit of liability. To control that practical problem, the Hercules Court adopted the ‘end and aim’ rule. Most courts use the ‘end and aim’ rule differently, incorporating it into the duty or proximity analysis.98 This makes sense. What can it mean, or should it mean, to say liability is limited to losses incurred in ‘precisely the purpose or transaction for which (the information or advice) was prepared’,99 other than that the scope of liability is defined by the responsibilities the defendant assumed? This is a proximity question of principle, not a policy concern about indeterminate liability.100

96

The term was first used by Cardozo J in Glanzer (n 30). To say that when one speaks of the reliance required to justify a duty in misrepresentation one means reliance on the responsibilities the defendant assumed is redundant. It also obscures the importance of the assumption of responsibility. 98 See nn 28–30 above. See also Restatement, Third §5 (n 83). 99 Hercules (n 4) [46]. 100 The most famous expression of the indeterminacy problem, a concern about ‘a liability in an indeterminate amount for an indeterminate time to an indeterminate class’ may be found in Ultramares Corporation v Touche 174 NE 441 (NYCA 1931) 444 (Cardozo CJ). It has been argued that these 97

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This raises the question of whether the potential for indeterminate liability can ever arise if there has been a proper application of the ‘end and aim’ test at the proximity stage of a misrepresentation action. In the Imperial Tobacco case, the Supreme Court of Canada effectively held that the potential for indeterminate liability could survive a proper proximity analysis.101 I disagree.102 In brief, in Imperial Tobacco, tobacco companies were advised by their regulator, Health Canada, to introduce, promote and market low-tar cigarettes as a harm reduction measure. The companies were sued by smokers, who alleged that low-tar cigarettes did not reduce the harm from smoking, and that negligently encouraging smokers to use low-tar cigarettes caused many of them to smoke more, or to forego other harm-reduction measures, particularly quitting smoking, altogether. This in turn caused some smokers to suffer unnecessary illness or premature death. The smokers’ class action against Health Canada was dismissed for want of proximity. The tobacco companies also sued Health Canada, seeking to recoup some of the losses that they expected to incur when they were held liable in damages to the smokers. This part of the case was framed in negligent misrepresentation. The Supreme Court applied the foreseeable reliance test from Hercules with little discussion. However, it is evident that the facts of the Imperial Tobacco case would easily have satisfied a proper assumption of responsibility test. There was no doubt that Health Canada intended the companies to rely on its advice about low-tar cigarettes. The Court dismissed the action based on a Step Two Anns concern about public authority policy immunity from negligence liability. This is controversial in its own right.103 In addition, again with little discussion, the Court held that the prima facie duty had to be negated because it created a potentially indeterminate ambit of liability. As we know from Hercules, the foreseeable reasonable reliance test may actually create potentially indeterminate liability. The present question concerns whether indeterminate liability will arise in misrepresentation if the court uses the assumption of responsibility approach. Usually when one speaks about an indeterminate risk there are background concerns about a ‘large risk’, possibly a ‘ruinous risk’, or a risk disproportionate to fault. Imperial Tobacco illustrates that a defendant may assume an extremely

concerns were expressed to suggest that there was an error in the duty analysis if such exposure existed, not expressed for the purpose of limiting the exposure generated by the (improper) duty formulation. Cardozo CJ presumably would have found Hercules a good example of his point. See J Neyers, ‘Donoghue v Stevenson and the Rescue Doctrine: A Public Justification of Recovery in Situations Involving the Negligent Supply of Dangerous Structures’ (1999) 49 University of Toronto Law Journal 475 at n 51, citing P Benson, ‘The Basis for Excluding Liability for Economic Loss in Tort Law’ in D Owen (ed), Philosophical Foundations of Tort Law (Oxford, Clarendon Press, 1995) 427, 434; R Bernstein, Economic Loss (London, Longman Group, 1993) 14; Weinrib (n 48) 231. 101

Imperial Tobacco (n 4). See also L Klar, ‘Imperial Tobacco Ltd: More Restrictions on Public Authority Tort Liability’ (2012) 50 Alberta Law Review 157 [49]. 103 Public authority negligence immunity and its application in Imperial Tobacco are criticised by B Feldthusen, ‘Public Authority Immunity from Negligence Liability: Uncertain, Unnecessary, and Unjustified’ (2014) 92 Canadian Bar Review 211. 102

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large risk, although probably not ruinous in the case of the federal government of Canada. As for disproportionate, I am not sure it would have been. Regardless, that matter would be better dealt with by a judge apportioning liability among the government and the tobacco companies. Large, ruinous or disproportionate loss may be legitimate concerns in their own right. However, our positive law has not embraced openly a policy argument that exculpates defendants simply because the damage it has done is too large. It is as if using the adjective ‘indeterminate’ instead renders it unnecessary to do so. Indeterminacy as a policy matter is not the same as large damage, although the outcome of indeterminacy may be large damage. Indeterminacy is important because a prospective defendant cannot rationally assess an unknown and unknowable risk. One would have to question the mental capacity of a defendant who voluntarily assumed open-ended responsibility and the mental capacity of a plaintiff who claimed to have reasonably relied on the defendant having done so. Insurance companies will either not cover open-ended risks, or will do so only at a literally prohibitive price. More fundamentally, is it coherent to speak of a relationship being both proximate and indeterminate at the same time? It is doubtful that the risk in Imperial Tobacco was indeterminate in this sense. Literally, the class was limited to the tobacco companies named as plaintiffs. Ultimately, the exposure turns more on the smokers than the companies. Health Canada either knew or could have known the number of smokers in Canada who smoked the plaintiffs’ brands. It would have had an excellent idea about the aggregate costs to individual smokers who continued to smoke, and the aggregate savings, if they quit. These are the outer parameters of the risk. It is inconceivable that Health Canada would have adopted low-tar cigarettes as its signature harm-reduction policy unless it had reliable indications about the number of smokers who would not have quit, but who would switch to low-tar cigarettes, and what difference this would make to the risk of illness and death. It is difficult to see the smokers recovering damages from the companies without being able to assemble this information. This information narrows the parameters of exposure considerably. Health Canada either had this information and more, or could have had it. This is precisely the risk Health Canada intended the tobacco companies to run. The pleadings suggest they miscalculated the benefits of low-tar cigarettes. This has nothing to do with the risk being indeterminate. The assumption of responsibility proximity test defined the risk. Properly applied, there should never be a residual indeterminacy problem.104

V. What about Reliance? Having established that the defendant must intend the plaintiff to rely to his or her detriment, it is necessary to give the notion of reliance greater attention. A provocative 104 I leave for another day the question of how many truly indeterminate liability situations exist in tort law generally. I suspect many labelled as such are simply large liability situations.

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question, given that assumption of responsibility and the related ‘end and aim’ test are incorporated into the proximity analysis, is whether reliance need be part of the duty analysis at all. It is tempting to say ‘no’ for two reasons. First, the Hedley Byrne principle is often referred to by the courts and writers as a reliance-based duty of care. In some ways this is accurate, but it is also a description that may invite the misconceived Hercules approach. Second, there is at least a possibility that an assumption of responsibility approach might apply in cases that do not involve reliance at all, or at least not reliance by the plaintiff. The frustrated beneficiary cases come to mind as possibilities.105 In any event, I do not claim such cases exist, but I am reluctant to endorse an approach that seems to exclude the possibility of their doing so. Reliance in fact is necessary to establish causation. It may also be one of several indicators that the defendant, on an objective test, had assumed responsibility. It is true that there must be detrimental reliance to make the claim actionable. Gratuitous undertakings are not actionable otherwise. But this requirement could be treated as a requirement of actionable damage, rather than a matter of duty. Nevertheless, I think it is most accurate to include detrimental reliance as an element of duty along with assumption of responsibility. The courts agree that the plaintiff ’s reliance must be reasonable or justifiable to support liability. This does not mean merely that it was reasonable to rely in fact that the information or advice was prepared with due care. What makes the plaintiff ’s reliance reasonable or justifiable is what responsibility was assumed by the defendant.106 If we define properly the responsibility actually assumed, and hold the defendant to it, then a further inquiry into whether the plaintiff was reasonable or justified in relying is redundant. The plaintiff may justifiably rely on the defendant fulfilling the responsibilities it voluntarily assumed, no more and no less. This is a question of duty. It is the right not to be induced by the plaintiff ’s invitation to act in reliance to one’s detriment that justifies the misrepresentation action in the first place.107

VI. The Difference Between Hedley Byrne and Other Claims for Economic Loss When Hedley Byrne was decided, the great Patrick Atiyah speculated about whether Hedley Byrne had effectively abolished the exclusionary rule governing

105 See, eg, White v Jones [1995] 2 AC 207 (HL). One can argue that the negligent solicitor assumed responsibility to the testator, and the non–reliant beneficiary is permitted to recover the loss of an inheritance in order to ensure that the solicitor’s negligence does not go unchecked. Certainly, no harm has been done to the beneficiary who has no interest at all, let alone a primary right to receive the gift, which makes recovery in negligence problematic. A third-party beneficiary to contract analysis might be more satisfactory. In any event, this is a topic for another day. 106 It might be a greater or lesser standard than ‘due care’. 107 See, against, Beever (n 44) 300–01.

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the recovery of pure economic loss in negligence.108 He was jousting with a straw man. No such exclusionary rule existed in Commonwealth tort law at that time.109 There was a long-standing exclusionary rule against recovery for the negligent interference with contractual relations.110 It survives today as a general exclusionary rule against recovery for relational economic loss—that is, loss suffered by the plaintiff when the defendant injures a third party with whom the plaintiff enjoys some relationship, usually contractual.111 It has nothing whatsoever to do with the issues in Hedley Byrne. A second exclusionary rule developed later to preclude recovery in negligence against a non-privity manufacturer or builder for the cost of remedying product or structural defects. There simply had not been any attempts to recover for product defect claims in the absence of privity before that time. This rule originated in the US products liability field and was known as ‘the economic loss rule’.112 It was originally adopted in Canada,113 but not in the United Kingdom.114 Today it has been rejected in Canada,115 but adopted in the United Kingdom.116 The fact that the loss is purely economic in both the relational and product liability cases allows some theorists to speak of an exclusionary rule for economic loss today. Obviously such a rule does not apply to Hedley Byrnetype cases, sometimes referred to as reliance-based cases. Nor does such a rule even exist in Canada, given the right to recover for product/structure defect loss. The tendency to generalise from misrepresentation cases to relational loss cases has proven unfortunate. For 25 years after the decision in Hedley Byrne, numerous Canadian courts relied on Hedley Byrne as an inspiration to craft exceptions to the long-standing exclusionary rule for relational loss.117 I used to advise my law students, tongue only half in cheek, to simply chant ‘Hedley Byrne’ in court whenever acting for the plaintiff in an economic loss case. Interestingly, it was LaForest J who finally put a stop to the tendency to generalise from misrepresentation principles to relational loss.118 He also gave the important dissenting judgment 108 PS Atiyah, ‘Negligence and Economic Loss’ (1967) 83 LQR 248. Such an exclusionary rule is also referred to in the judgments of McLachlan J and Stevenson J in Norsk (n 7) and by LaForest J in Winnipeg Condominium (n 4). 109 If one agrees with Beever (n 44) that Hedley Byrne-type cases are not negligence cases, the discussion below might suggest that such a rule exists today. 110 Anthony v Slaid 52 Mass 290 (1846); Cattle v Stockton Waterworks (1874) LR 10 QB 453; Simpson v Thomson (1877) [1877–78] LR 3 App Cas 279 (HL Scotland). 111 In Canada, see Bow Valley (n 7) and the dissenting judgment of LaForest J in Norsk (n 7). In the UK, see Leigh & Sillivan Ltd v Aliakmon Shipping Co Ltd [1986] 1 AC 785 (HL); Candlewood Navigation Corporation Ltd v Mitsui OSK Lines Ltd [1986] 1 AC 1 (PC). The UK recognises fewer exceptions than does Canada. In the US, see State of Louisiana ex rel Guste v M/V Testbank 752 F2d 1019 (5th Cir, 1985). But in Australia see Perre v Apand Pty Ltd [1999] HCA 36. 112 See East River Steamship (n 36). 113 Rivtow Marine Ltd v Washington Iron Works and Walkem Machinery & Equipment Ltd [1974] SCR 1189, 1207 citing Trans World Airlines Inc v Curtiss-Wright Corp 148 NYS 2d 284 (1955). 114 Anns (n 3). 115 Winnipeg Condominium (n 4). 116 Murphy (n 35), citing East River Steamship (n 36). 117 See Feldthusen (n 91) ch 5. 118 This began in his dissenting judgment in Norsk (n 7) and also in Winnipeg Condominium (n 4). But see Bow Valley (n 7).

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in CNR v Norsk,119 which led eventually to the Supreme Court effectively restoring the exclusionary rule for relational loss in Bow Valley Husky v St John Shipbuilding.120 Although Hedley Byrne did approve recovery for economic loss, it is not really an economic loss case at all. The fact that the loss was purely economic was barely mentioned by the Law Lords.121 This turns out to have been wise. The principles of recovery recognised in Hedley Byrne—an assumption of responsibility by a defendant who intends, induces or invites detrimental reliance by the plaintiff— are identical to those that could also support recovery in an analogous action for personal injury or property damage. Someone who directs another to back up into an open trench could be held liable on either the authority of Hedley Byrne or Donoghue v Stevenson. More significant than the fact that the loss is purely economic is the fact that the representation alone does not injure the plaintiff. The direct cause of damage is the plaintiff ’s choice to rely on the defendant to his or her detriment. In comparable situations where the plaintiff ’s reliance causes physical damage, the plaintiff may only recover if the defendant assumed responsibility for the reliance. The plaintiff ’s choice to rely must be linked to some act or undertaking by the defendant. It does not matter whether the loss is physical or economic. Nonfeasance does not support liability in negligence. The rescue cases should make this clear.122 Again, perhaps in part because of Hercules, at least one Supreme Court of Canada decision seems to be out of line with other Commonwealth courts, and even its own decisions dealing with affirmative duties. Fullowka v Pinkerton’s of Canada Ltd is a tragic wrongful death case that provides a useful comparison to Hercules.123 Fullowka arose out of a bitter and violent labour dispute at a gold mine in northern Canada. The mine owners continued to operate the mine during the strike. The owners hired Pinkerton’s to protect the premises. A striker entered the mine undetected and set a trip wire to dynamite. The wire was tripped killing a total of nine miners and rescuers whose estates brought an action against Pinkerton’s and the government. The action against Pinkerton’s failed because the Court found that Pinkerton’s did not breach the standard of care. However, the Supreme Court did recognise a duty of care owed by Pinkerton’s to the miners based on the fact that Pinkerton’s must have known that the miners were relying on Pinkerton’s to keep them safe. This was unilateral reliance. Significantly, the Court did not simply apply the assumption of responsibility approach that had been recognised in the courts below. 119 120 121

Norsk (n 7). Bow Valley (n 7). They attached more attention to the distinction between negligence in word and negligence in

deed. 122 See n 84. As discussed above during the discussion of voluntary assumption of responsibility, the law does impose a duty to rescue in certain situations when the parties are in a pre-existing special relationship such as teacher-pupil. This may be a different or additional basis of liability than one voluntarily assumed, a point that need not be resolved for present purposes. 123 Fullowka v Pinkerton’s of Canada Ltd, 2010 SCC 5, [2010] 1 SCR 132.

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In the absence of an assumption of responsibility by Pinkerton’s to the miners, liability should only have been explored under a third party beneficiary to contract rationale, or indirectly through an action against the owners to whom Pinkerton’s did owe a contractual duty. It should not have been based on unilateral reliance. As between Pinkerton’s and the miners, this was pure nonfeasance.124 This is Hercules all over again, and objectionable for the same reason.

A. Relational Economic Loss There is no real relationship of history or principle between the misrepresentation cases on the one hand, and the relational loss cases on the other, save at a meaningless level of generality. The authorities canvassed so thoroughly in Hedley Byrne were cases dealing with the law of misrepresentation, not negligent acts that caused physical damage to others, let alone relational loss. There is no assumption of responsibility or reliance aspect whatsoever in a standard relational loss claim.125 On a superficial level, the policy concern with potentially indeterminate liability is common to both misrepresentation and relational loss actions, but this concern disappears entirely in misrepresentation with a proper proximity analysis.126 Earlier, I suggested that the purely economic nature of the loss in Hedley Byrne was not a significant concern. In contrast, the economic nature of the loss is seen by some as critical to the exclusionary rule for relational economic loss. Beever and Benson would explain the exclusionary rule for relational loss on the ground that the plaintiff does not hold a right to be protected from interference with his or her purely economic interests.127 Under this approach, there will not be an issue of potentially indeterminate liability to consider. One weakness of this argument is its apparent circularity—one cannot recover for relational economic loss because one has no right to do so. Another is that it restricts negligence law to recognising pre-existing rights and is therefore inherently conservative. McBride would put the standard rights-based explanation the opposite way— one cannot recover relational economic loss because tort law has not recognised a coercive right to economic security that can be asserted against other people.128 This is equally circular, but with very different repercussions. It is insufficient to say one cannot recover economic loss because there is no existing right to be protected

124

See n 84. But see the comments of McLachlan CJC in Bow Valley (n 7) [51]–[56]: ‘Although styled as an action for negligent misrepresentation, the plaintiffs’ claim was treated as a case of relational economic loss owing to the fact that the services were performed pursuant to a contract with the company. The primary loser was the company, which had contracted with the auditors. The plaintiffs’ loss was derivative of, or relational to, the company’s loss’. It is, I think, inaccurate to say that the claim in Hercules was treated as a claim for relational loss. It is true that, on the particular facts, dismissing the action in Hercules could have been justified by both the misrepresentation case law and the relational loss case law. 126 See the discussion of Imperial Tobacco (n 4) in Section IV above. 127 Benson (n 55) 865; Beever (n 44) 214. 128 McBride (n 80) 348. 125

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from interference with purely economic interests. Under the McBride approach, courts may create new rights, including qualified rights, enforceable in negligence. McBride offers his own guidelines for whether the courts should recognise coercive rights and correlative duties. They include a public interest element. With relational loss, he ends up supporting the exclusionary rule. He concludes that the burden on potential defendants would be disproportionally large and that the flood of claims such a duty would create would have an undesirable effect on individual freedom. One cannot help but be struck by the similarities among the reasons why traditional moral theory has never supported a right to recover relational economic loss; why McBride does not support a right to recover relational loss; why recognising such a duty has not been found to be ‘fair, just and reasonable’;129 and why ‘policy’ reasons negative a prima facie duty of care under Anns.130 Whether those four approaches are essentially different, similar, or the same, none depends on any reason relevant to recovery in misrepresentation.

B. Product/Structure Defect Loss The other well-recognised category of claim for pure economic loss concerns product or structural defects. LaForest J gave the judgment for the Court in Winnipeg Condominium v Bird Construction.131 The Supreme Court held that a building owner could recover in negligence from a non-privity builder for the cost of repairing a dangerous structural defect. The Court overruled its previous decision in Rivtow Marine, which had held that product quality claims of this sort must be pursued in contact.132 The Winnipeg Condominium rule also applies today to defective chattels. The question of whether the same rule should apply for nondangerous defects still vexes the courts. In Winnipeg Condominium, LaForest continued to stress, as he had in Norsk,133 that the courts ought not to generalise from one line of authority— misrepresentation, for example—to another, such as product defect loss. Then he did exactly what he said the courts ought not to do. He relied on Hedley Byrne to overcome the ‘broad exclusionary rule’ to inspire the recognition of the economic loss claim for repair costs. LaForest J also relied heavily on the decision in Anns, a direct precedent for awarding the same type of damage that the Court approved

129

ibid 335. These are exhaustively presented in dissent by LaForest J in Norsk (n 7). See also Restatement (Third) Liability for Economic Harm, Tentative Draft No 3 (September 2013), §7 ‘Economic loss from injury to a third person or to property not belonging to the claimant.’ §7 adopts the basic, bright-line exclusionary rule for relational loss. All the reasons given in the commentary are policy reasons including indeterminate or disproportionally large liability, uncertain deterrence effects, opportunities for plaintiffs to protect themselves and the difficulty of framing principled exceptions. 131 Winnipeg Condominium (n 4). 132 Rivtow Marine (n 113). 133 Norsk (n 7). 130

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in Winnipeg Condominium. He did so knowing that in Murphy the House of Lords had rejected the holding in Anns.134 Although LaForest J described the claim as one for pure economic loss, he justified the duty by stating that the ultimate injury would be foreseeable injury to person or property.135 This is why he did not extend the decision to cover nondangerous defects. Anns and Rivtow Marine are similar in this respect. The justification for the duty of care was deterrence.136 At first glance, cases like Winnipeg Condominium appear to be property damage cases. However, the defendant has not damaged the plaintiff ’s property. The plaintiff purchased the product or structure from a third party with a latent defect. The plaintiff thereby obtained a property right in a defective product or structure. The defendant did not do anything to interfere with that right. Nor did the defendant do anything to the plaintiff to create or define the plaintiff ’s rights. The cost of repairing the defect is therefore a pure economic loss.137 This does not necessarily mean it is not recoverable. But for a traditional rights-based theorist it does mean the cost of repair is not recoverable, even prima facie recoverable, under the Donoghue v Stevenson neighbour principle of negligence law. If there is a right to recover, it has to be constructed otherwise. This is essentially the position adopted by the House of Lords in Murphy.138 In the United States, the exclusionary rule for product defects is generally explained by a preference for private ordering effected through contract law or statutory sales law in preference to negligence or strict tort law.139 It is beyond the scope of this chapter to determine whether common law contract’s privity requirement is dictated by rights-based corrective justice, or whether a warranty running with the product or structure to the ultimate user might also be so justified. Contractual rights are primary rights and conceivably the justification could be found there. However, LaForest J explicitly rejected the idea that tort should defer to contract.140 Winnipeg Condominium raises the familiar questions of whether common law judges should ever create liability rules based on policies such as deterrence or various notions of loss distribution, and if so, when. For those who accept that 134

Murphy (n 35). Winnipeg Condominium (n 4) [36]. 136 ibid [37]. 137 A Beever, ‘A Rights-Based Approach to the Recovery of Economic Loss in Negligence’ (2004) 4 Oxford Commonwealth Law Journal 25, 37–38. 138 Murphy (n 35). See also Sutherland Shire Council v Heyman (1985) 60 ALR 1 (HCA). 139 The private ordering preference is explained and criticised by J Feinman, ‘The Economic Loss Rule and Private Ordering’ (2006) 48 Arizona Law Review 813 and DB Dobbs, ‘An Introduction to Non-Statutory Economic Loss Claims’ (2006) 48 Arizona Law Review 713. 140 Winnipeg Condominium (n 4) [23]. That point of view also accounts for an arguably problematic degree of concurrent liability in contract and in negligent misrepresentation in Canada. See BG Checo (n 4). In contrast see Restatement, Third (n 67) §3 ‘Preclusion of Tort Liability arising from Contract’ (called the ‘economic loss rule’ by the Reporter): ‘Except as provided elsewhere in this Restatement, there is no liability in tort for economic loss caused by negligence in the performance or negotiation of a contract between the parties’. 135

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negligence law may and should pursue policy goals, deterrence and loss distribution are non-controversial goals. One problem is that it is arguable whether the rule in Winnipeg Condominium adds much of anything to deterring accidents caused by product or structural defects.141 Another is that it is doubtful that a court will be able to achieve much in the way of intended loss distribution where the parties remain free to reallocate the prospective loss by contract.142 Given that product and structure defects have been the subject of considerable policy-based legislative attention, perhaps it would have been wiser to defer to the statutory regimes? It is clear that product/structure defect claims of this sort do not involve assumptions of responsibility to the plaintiff, nor reliance intended, induced or invited by the defendant, at least not the way these terms are employed in misrepresentation cases. The misrepresentation jurisprudence offers little to enlighten us about the defect cases. The fact that the loss is economic is irrelevant in misrepresentation if the defendant has assumed responsibility for the plaintiff ’s detrimental reliance. Under a policy-driven approach, issues of deterrence and loss distribution will usually be present in the negligence analysis. So it is with policy discussions about relational loss and product/structure defect loss. However, the specific policy issues in these two types of case are sufficiently different to warrant not generalising from one line of authority to the other. On the other hand, in neither case can the plaintiff assert that the defendant has interfered with his or her primary right. The traditional rights-based theorists would find the fact that there is no right to be free of interference with one’s economic interests a sufficient explanation for an exclusionary rule in negligence that applies to both relational loss and product/ structure defect loss.

VII. Does it Really Matter? Continuing to follow the decision in Anns v Merton143 has been detrimental to the development of non-paradigmatic144 Canadian negligence law; notably negligent misrepresentation, relational economic loss, defective product/structure economic loss, and statutory public authority immunity cases. By following Anns, the Supreme Court has discounted meaningful distinctions between physical damage to primary rights and pure economic loss, between misfeasance and nonfeasance, and between tort and contract.

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See Feldthusen (n 91) 192–93. J Palmer, ‘Bird: A Confusion Between Property Rules and Liability Rules’ (1995) 3 Tort Law Review 240. 143 Anns (n 3). 144 That is in areas outside misfeasance causing personal injury or property damage, which are covered by the neighbour principle of foreseeable harm to a foreseeable plaintiff. 142

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Relying on the Hedley Byrne line of authority to develop the law governing relational economic loss was unnecessary and unhelpful. Some will criticise the Court for failing to have adopted a rights-based approach in support of the general exclusionary rule and exceptions for relational economic loss. However, while one might quibble about the exceptions to the exclusionary rule, the Supreme Court relying on policy arguments did reach the same answer as that suggested by a rights-based approach. Moreover, if there was ever an area of non-paradigmatic negligence law where the policy arguments were generally accepted as relevant and clear by lawyers, judges and academics, it is in the area of relational economic loss. Relying on the Hedley Byrne line of authority to develop the law governing defective product/structure economic loss was also unnecessary and unhelpful. Again, some will criticise the Court for failing to have adopted a rights-based approach which supports denying recovery for such losses in negligence. With product/structure defects there is no consensus about whether the policy arguments in support of liability are appropriate, relevant and clear. There is no obviously objectively correct policy outcome, and liability is not supported by the rights-based approach. It might have been preferable for the Court to at least have considered, if not deferred to, the implications of the relevant contractual and statutory rules in play. The Supreme Court was wrong to abandon Hedley Byrne in Hercules. There exists no stand-alone primary right to purely economic security and no appetite among philosophers or most jurists to create one. The right to sue for detrimental reliance loss in misrepresentation must be granted by the defendant’s assumption of responsibility. The ‘end and aim’ requirement is really a statement of what responsibility was assumed. Properly applied, it ensures that there will be no residual policy concern about indeterminate liability. An interesting question is whether the choice between a Hedley Byrne assumption of responsibility approach on the one hand, and a Hercules foreseeable reliance approach with an ‘end and aim’ indeterminacy adjustment on the other, really matters?145 The responsibility for the ‘end and aim’ is nothing more or less than what responsibility was, on an objective determination, assumed. So either the assumption of responsibility approach or the Hercules approach should arrive at the same outcome. True, under the Anns approach, the onus of proof rests with the plaintiff to establish proximity, but on the defendant to establish policy reasons to negative a prima facie duty of care. This might lead to a small sample of different outcomes. Otherwise, what is the difference? The case in which a different outcome would be possible is one in which the plaintiff foreseeably relied in the sense that the plaintiffs reasonably relied in Hercules, but potentially indeterminate liability did not arise on the facts. Hercules stands for the proposition that the defendant ought to be liable to anyone who foreseeably relies unless there is a practical problem. Given that Hercules has never 145 See Cooper v Hobart (n 17) [27], suggesting there is little difference of importance between a Step One and a Step Two consideration.

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been challenged on such grounds in over 15 years, this is probably not a major practical problem. That low probability of objectionable outcomes under Hercules is not a sufficient justification for ignoring the error in Hercules. The message of Hercules is as follows: any foreseeable plaintiff may use without purchasing or negotiating permission another’s commercial information or advice without the defendant’s consent. The only conditions are: (1) that the information or advice must appear to be reasonable or reliable in fact, and (2) that such information or advice can only be appropriated by a well-defined limited number of persons for use in a well-defined limited number of transactions so that the problem of indeterminate liability does not arise. Only if the problem of indeterminate liability does arise will practical limits be imposed via the ‘end and aim’ rule. This is an embarrassing message. It does not reflect the high quality of the Supreme Court, or the Bar that argues before it. It does not reflect the outstanding contributions of LaForest J to the law of negligence. I am confident that he, like others, would have changed his mind about the justification for liability in negligent misrepresentation, had he had the opportunity to do so.

12 Liability Under Hedley Byrne for ‘Pre-Contract’ Negligent Misrepresentation: A New Zealand Perspective DAVID MCLAUCHLAN

I. Introduction It used to be a settled rule of the law of contract that a person who was induced to enter into a contract by the other party’s misrepresentation could not ordinarily recover damages unless the representation was fraudulent, and thus actionable in the tort of deceit, or it was contractually binding, either as a term of the principal contract or a collateral contract. The leading case was Heilbut, Symons & Co v Buckleton1 where all members of the House of Lords joined Lord Moulton in emphasising that it was ‘of the greatest importance … that this House should maintain in its full integrity the principle that a person is not liable in damages for an innocent misrepresentation, no matter in what way or under what form the attack is made’.2 For the purpose of this fundamental principle an ‘innocent’ misrepresentation was simply one that was ‘non-fraudulent’, ie, it included a misrepresentation made carelessly. In addition, it was held that whether the representation was a term of the contract must depend on the intention of the parties to be determined from the totality of the evidence. The requirement of intention to be bound was sometimes criticised as being based on a mistaken view of the previous authorities,3 but the decision in Heilbut settled the law and subsequently became the starting point for countless cases in which the question arose whether a pre-contract representation was a ‘mere’ representation or contractually binding 1

Heilbut, Symons & Co v Buckleton [1913] AC 30. ibid 51. See, eg, S Williston, ‘Representation and Warranty in Sales—Heilbut v Buckleton’ (1913) 27 Harvard Law Review 1; DW Greig, ‘Misrepresentations and Sales of Goods’ (1971) 87 LQR 179; PS Atiyah, ‘Misrepresentation, Warranty and Estoppel’ (1971) 9 Alberta Law Review 347, 348−49. 2 3

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as a ‘warranty’ so as to give the plaintiff a right of action in damages if it turned out to be false.4 However, the possibility of a new cause of action for negligent misrepresentation was opened up when, in 1963, the House of Lords held in Hedley Byrne & Co Ltd v Heller & Partners Ltd5 that a duty of care will be owed in the giving of information or advice where there exists a ‘special relationship’ between the representor and representee involving an ‘assumption of responsibility’ on the part of the representor. As speculation began concerning the scope of the new principle and its wider implications, one of the many questions that attracted a good deal of attention was whether a person who had entered into a contract relying on an ‘innocent’, albeit careless, misrepresentation by the other party might now be able to recover damages. It was argued that if A could recover damages from B for a careless misrepresentation that induced A to enter into a contract with C, the situation should be no different where the contract is with the representor, B. The introduction of this new category of negligent misrepresentation inducing contract was seen as having the effect of enabling representees to recover damages in many situations without having to establish that the representation was a term of the contract, although not in all of course because some ‘innocent’ misrepresentations might be truly innocent, ie, non-careless. Commentators generally favoured extension of the Hedley Byrne principle to pre-contract representations, but their views differed as to the extent of its application and its practical significance. Some made its application subject to independent proof of a special relationship.6 Some went further and suggested that a pre-contract relationship, by its very nature, would be a ‘special relationship’.7 Others, while not denying the possible application of Hedley Byrne, viewed the new liability as being limited to representations by professional or skilled persons and thus not applicable in the majority of contract situations.8 In addition, they saw little practical significance for the new remedy because, in situations where the tort test of liability was met, the law of contract, independently of Hedley Byrne, would be able to impose liability in damages by categorising the statement in question as a term or collateral contract. However, as we shall see, the courts, after some initial opposition, soon began to accept that a duty of care may be owed in respect of statements made in the course of pre-contract negotiations. 4 See, for a very small sample, Turner v Anquetil [1953] NZLR 952; Routledge v McKay [1954] 1 WLR 615; Kemp v Dalziel [1956] NZLR 1030; Oscar Chess Ltd v Williams [1957] 1 WLR 370; Coffey v Dickson [1960] NZLR 1135: Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER 65. 5 Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. 6 See, eg, R Stevens, ‘Hedley Byrne v Heller: Judicial Creativity and Doctrinal Possibility’ (1964) 27 MLR 121, 156. 7 AG Guest, Anson’s Law of Contract, 22nd edn (Oxford, Clarendon, 1964) 219; JA Weir, ‘Liability for Syntax’ [1963] CLJ 216, 220; MA Millner, Negligence in Modern Law (London, Butterworths, 1967) 40, 141. 8 B Coote, ‘The Effect of Hedley Byrne’ (1967) 2 New Zealand Universities Law Review 263, 276; AM Honoré, ‘Hedley Byrne & Co Ltd v Heller & Partners Ltd’ (1965) 8 Journal of the Society of Public Teachers of Law 284, 296.

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This chapter has four objectives. First, it seeks to demonstrate that their Lordships in Hedley Byrne did not intend their ruling to affect the then settled principles of the law of contract governing liability in damages for misrepresentation made by a defendant that induced a plaintiff to enter into a contract with the defendant. Secondly, it outlines the development of the law in this area and considers the need for, and possible advantages of, the new cause of action. Thirdly, it highlights the abolition in New Zealand by the Contractual Remedies Act 1979 of liability in tort for both pre-contract negligent and fraudulent misrepresentation, as well as the dubious thinking that lay behind this ‘reform’. Finally, it draws attention to the impact of trade practices legislation in Australia and New Zealand, which creates, in effect, a statutory tort of ‘misleading or deceptive conduct’.9 This legislation has to a large extent displaced the need to pursue liability under Hedley Byrne in most situations that come before the courts and, in the New Zealand context (where the legislation was passed some seven years after, and apparently in ignorance of, the Contractual Remedies Act 1979), it undermined the intention of Parliament in the latter Act to rationalise and simplify the law relating to misrepresentation and breach of contract.

II. The Speeches in Hedley Byrne It is interesting to reflect, after all that has happened over the 50 years since Hedley Byrne was decided, on the question whether their Lordships intended their ruling to affect the law relating to damages liability for pre-contract misrepresentation. As foreshadowed, an analysis of the judgments reveals that the better view is that they did not so intend. It is important to recall that prior to Hedley Byrne it was thought that damages could not be recovered for financial loss caused by a careless misstatement unless the representor and the representee were in either a contractual or a fiduciary relationship. When the House of Lords set out to remedy this situation, the chief obstacle to be overcome was its earlier decision in Derry v Peek.10 That case had been regarded as confining the remedy of damages for misrepresentation, in the absence of a contract or a fiduciary relationship, to misrepresentations made dishonestly. Once Derry v Peek had been explained as not precluding liability where there existed some other ‘special relationship’ between the parties, nothing else stood in the way of the House reaching its desired conclusion. Certainly, there was no need to qualify the generally accepted ratio of Heilbut, Symons & Co. v Buckleton which, like Derry v Peek, was binding on the House at that time. 9 In Australia, s 52 of the Trade Practices Act 1974 (Cth) (now s 18(1) of the Australian Consumer Law, Schedule 2 of the Competition and Consumer Act 2010 (Cth)) and, in New Zealand, s 9 of the Fair Trading Act 1986. 10 Derry v Peek (1889) 14 App Cas 337.

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Although obviously strongly influenced by the decision in Derry v Peek, and the philosophy behind it, Heilbut Symons did not provide an obstacle in Hedley Byrne because it covered a different situation. There the question was whether the obligations assumed by the parties to a contract for the allotment of shares extended to an alleged misstatement by the defendant immediately prior to the conclusion of the contract. It was held that the misstatement (which, it seems, was regarded by Lord Atkinson as having been made carelessly)11 was not remediable in damages because it was not intended by the parties to constitute a warranty. Thus, the rule of law established by the case was that where a person induces another to enter into a contract with him by making a non-fraudulent misstatement damages are not recoverable unless the statement was intended to constitute a warranty. Furthermore, not only was there no need to limit Heilbut Symons, but no limitation was attempted. That case was binding and there was no easy way around it. Importantly, counsel for the appellants in Hedley Byrne conceded that, in respect of pre-contract statements, the requirement of intention to warrant must remain.12 It seems that the House proceeded on the same assumption. Perhaps their Lordships were also influenced by the fact that in the case of pre-contract misstatements the representee did not have to embark on the very difficult task of establishing fraud in order to recover compensation. A warranty or collateral contract could be found in cases where the speaker ought to be held responsible. Certainly this was Lord Reid’s view. Early on in his speech his Lordship said:13 The most natural requirement [for liability in respect of negligent misrepresentation] 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. (emphasis added)

It is clear therefore that his Lordship thought that the necessity for a contracting party to prove a warranty in order to recover damages in respect of a pre-contract misstatement was to remain unaffected. Admittedly, the other speeches were more equivocal, but overall they neither supported nor excluded the possibility of the new principle applying to pre-contract misstatements and it is the lack of support that is most significant in light of the fact that the House was faced with its earlier binding decision in Heilbut Symons. Lord Devlin said nothing affecting the issue and Lord Morris’s speech, although

11

Heilbut Symons (n 1) 43. Hedley Byrne (n 5) 478. Gardiner QC argued (emphasis added): ‘When a professional man undertakes to do a professional job and provides information or advice, whether directly or through an agent, knowing that a sum of money depends on it, this imposes on him a duty of care. The fact that in the case of a warranty there must be an intention to contract is true but irrelevant because that is in the realm of contract, while this is in the realm of tort’. 13 Hedley Byrne (n 5) 483. 12

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citing Heilbut Symons, was also neutral.14 However, Lord Hodson and Lord Pearce did refer, albeit rather indirectly, to the question of pre-contract misstatements. Both of the relevant passages are difficult to interpret. Lord Hodson said:15 I do not overlook the point forcefully made by Harman LJ in his judgment [in the Court of Appeal]16 and elaborated by counsel for the respondents 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 … [In such cases] innocent misrepresentation is not the cause of action but evidence of the negligence which is the cause of action.

A difficulty with this passage is that, when one reads Harman LJ’s very brief judgment in the Court of Appeal, it is not obvious that he did make the point that Lord Hodson said he ‘forcefully made’. Harman LJ essentially made three short points. First, it is a ‘fundamental proposition’ that a mere ‘innocent’ misrepresentation— which he defined as a misrepresentation ‘made without dishonesty’—that induces a contract of sale does not sound in damages, although it may provide ‘a good defence to an action of specific performance’ as well as ‘a sword … to obtain rescission of an executory contract’. Secondly, ‘there may be relationships of a contractual or fiduciary kind which are exceptions to that rule, but apart from that, and in the ordinary case, damages are out of the picture’. Thirdly, no such relationship existed on the facts so that, ‘once the plaintiffs here decided to abandon their charge of fraud, they had no hope of success’. Lord Hodson may have thought that Harman LJ’s real point was that it would be odd if, as between contracting parties themselves, a non-fraudulent misrepresentation did not sound in damages, whereas a third party ‘in the special cases under consideration’ might be liable to pay damages if its negligent misrepresentation induced one of the parties to enter into the contract, but, be that as it may, his Lordship’s main argument in this part of his speech was that an existing contractual or fiduciary relationship was not the only kind of ‘special relationship’ that might give rise to liability for negligent misrepresentation. Viewed from this perspective, and bearing in mind both the concession by counsel for the appellants noted earlier17 and the respondents’ argument that ‘damages cannot be obtained for innocent misrepresentation

14 His Lordship referred ((n 5) 502) to Lord Moulton’s statement, quoted at the beginning of this chapter, that it was of ‘the greatest importance … that this House should maintain in its full integrity the principle that a person is not liable in damages for an innocent misrepresentation, no matter in what way or under what form the attack is made’ and simply added: ‘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’. 15 Hedley Byrne (n 5) 511 (emphasis added). 16 [1962] 1 QB 396, 415. 17 See above n 12.

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unless there is a warranty’,18 it seems much more likely that Lord Hodson was not intending to qualify the well-established law concerning representations between parties about to contract with each other: ie, that in order to recover damages the representee must establish that the misrepresentation was made fraudulently or amounted to a breach of warranty. In other words, Lord Hodson was acknowledging the force of counsel and Harman LJ’s propositions concerning the liability of contracting parties concerning pre-contract misrepresentation, but denying that this was a ground for precluding liability in tort in cases of third-party negligent misrepresentation. Thus, Lord Hodson was referring to the latter cases when he commented at the end of the passage quoted above that negligence, not innocent misrepresentation, is the cause of action. Lord Pearce’s reference to pre-contract misstatements is also somewhat difficult to interpret. His Lordship said:19 It is argued that to [uphold a duty of care where there is a special relationship] would create confusion in many aspects of the law and infringe the established rule that innocent misrepresentation gives no right to damages. I cannot accept that argument. The true rule is that innocent misrepresentation per se gives no right to damages. If the misrepresentation was intended by the parties to form a warranty between two contracting parties, it gives on that ground a right to damages (Heilbut Symons & Co v Buckleton). If an innocent misrepresentation is made between parties in a fiduciary relationship it may, on that ground, give a right to claim damages for negligence. There is also, in my opinion, a duty of care created by special relationships which, though not fiduciary, give rise to an assumption that care as well as honesty is demanded.

It is true that it would not be inconsistent with this passage to allow a contracting party to recover damages in tort from the other party for a careless misrepresentation which did not amount to a warranty, provided that the parties were in the required special relationship giving rise to a duty of care. However, when the passage is viewed against the background of counsel for the appellants’ concession and the fact that Heilbut Symons was a binding decision establishing the warranty requirement, it is highly unlikely that Lord Pearce intended to qualify that requirement. It was unnecessary to do so and, in any event, a more unequivocal statement would surely have been made if it was intended to lend support to an important qualification of what Harman LJ in the Court of Appeal had described as a ‘fundamental proposition’.

18 Hedley Byrne (n 5) 475. Stevens (n 6) 155 suggests that that the rule that there is ‘no remedy for a non-fraudulent misrepresentation not incorporated in a contract … was a cardinal element in the argument against liability on the part of the respondents in Hedley Byrne, who insisted that it would be absurd to refuse an action for damages where a representation had been made between parties who eventually concluded a contract, but to allow a remedy where a third party was involved’. This is, of course, the converse of the argument often put forward after Hedley Byrne in support of allowing the new principle to be invoked in respect of pre-contract misstatements: ie, it would be absurd to allow an action for damages where the misrepresentation induces a contract with a third party but to deny it where the misrepresentation induces a contract with the representor. 19 Hedley Byrne (n 5) 539.

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On the basis of the foregoing discussion it can be confidently suggested that none of their Lordships supported the extension of the Hedley Byrne principle to misrepresentations made in the course of pre-contract negotiations. Indeed, it can be argued that at least two of them (Lord Reid and Lord Hodson) were positively against it. However, no such niceties of analysis were to feature in subsequent judicial considerations of the issue. The judges in the early cases were content to rely on largely unreasoned assertion and when, in later cases, the extension was sanctioned the supporting reasoning was at best unconvincing.

III. Development of the Law A. The Early Cases During the period 1963–70, the question of the application of Hedley Byrne to pre-contract representations received little attention from the courts. On the two occasions that it did arise for consideration it was simply asserted that the traditional contract rules had survived Hedley Byrne unqualified. Thus, in Oleificio Zucchi SPA v Northern Sales Ltd20 McNair J said that ‘the submission advanced by the buyers, that the ruling in [Hedley Byrne] applies as between contracting parties, is without foundation’. A similar view was expressed by the New South Wales Court of Appeal in Rural Bank of New South Wales v King.21 Any further development of the law might have been curtailed as a result of the restrictive approach to Hedley Byrne liability in the controversial 1970 decision of the Privy Council in Mutual Life & Citizens’ Assurance Co Ltd v Evatt22 but, for the most part,23 this did not happen.24 Instead, during the period 20

Oleificio Zucchi SPA v Northern Sales Ltd [1965] 2 Lloyd’s Rep 496, 519. Rural Bank of New South Wales v King, unreported, 25 July 1966. 22 Mutual Life & Citizens’ Assurance Co Ltd v Evatt [1971] AC 793. The majority held, inter alia, that a person cannot be liable for careless statements the subject matter of which calls for no competence beyond that possessed by the ordinary reasonable man, eg, statements of bare fact, requiring no explanation or interpretation, and the imparting of information known to the speaker or to which he or she had no special access. The disastrous effect of this ruling is well illustrated by the decision in Plummer-Allinson v Spencer L Ayrey Ltd [1976] 2 NZLR 254, discussed in D McLauchlan, ‘Negligent Misstatement: The Case of the Careless Clerk’ (1976) New Zealand Law Journal 323. 23 An exception was Ellul and Ellul v Oakes (1972) 3 SASR 377, 392 where Zelling J held that a vendor could not be liable for negligently misrepresenting that the property was connected to the sewer (as opposed to being served by a septic tank) because ‘he was not a person holding himself out as possessing a special skill or ability’. 24 Heavy criticism of the majority’s reasoning led to the decision being widely ignored or rejected. See generally S Todd (ed), The Law of Torts in New Zealand, 6th edn (Wellington, Brookers, 2013) at 5.8.06. It was rejected by Ormrod LJ in Esso Petroleum Co Ltd v Mardon [1976] QB 801, 827 which, as we shall see, came to be the leading case on liability for negligent pre-contract misrepresentation. His Lordship thought that Evatt had the effect that Hedley Byrne ‘would be so radically curtailed as to be virtually eliminated’. If Evatt had been accepted, many of the cases that came to be regarded as standard illustrations of liability in tort for negligent pre-contract misrepresentation would have to have been decided differently: eg, Capital Motors Ltd v Beecham [1975] 1 NZLR 576 where a motor 21

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1971–76, the volume of authorities increased and the attitude of the courts gradually changed. In the first case, the question was left open.25 This was followed by two cases in which, although the tort action failed on the facts, it was cautiously suggested that the Hedley Byrne principle could in some circumstances impose a duty of care in respect of pre-contract statements.26 Then, in a series of Canadian,27 New Zealand,28 and English29 decisions, plaintiffs finally succeeded in establishing liability for negligent misrepresentation inducing contracts.

B. The Measure of Damages An interesting feature of those early cases is that they illustrate the different measures of damages applicable to a tort claim for negligent misrepresentation and a contract claim for breach of warranty. They show that success in the latter claim will usually be more beneficial to the plaintiff, but not always. Thus, in Ellul and Ellul v Oakes30 the plaintiffs, who were induced to buy the defendant’s house by a misrepresentation that the property was connected to the sewer, claimed damages for breach of warranty or, alternatively, negligent misrepresentation. They recovered damages for breach of warranty amounting to $550 being the cost of connecting the house to the sewer. This award compensated them for their loss of bargain. It put them in the position they would have been in if the representation had been true. However, the claim for negligent misrepresentation failed on the ground that it had not been established that the plaintiffs had suffered financial loss as a result of their entry into the contract. The object of tort damages is restitutio in integrum. The plaintiffs were only entitled to be put in the position they would have been in if the tort had not been committed and, in the case of negligent misrepresentation inducing a contract, this is usually the position they would have been in if they had not entered into the contract. The prima facie tort measure of damages was the difference between the price paid and the value of what was received under the contract and the plaintiffs had not proved that the house unsewered was worth less than the price paid for it.

vehicle dealer was held liable for its salesman’s careless misrepresentation that a car had not had more than two previous owners, which was hardly a matter requiring the exercise of any special skill or competence. Instead, the courts were prepared, broadly in line with the approach of Barwick CJ in the High Court of Australia in Evatt (1968) 122 CLR 556, 571, to impose liability where the circumstances were such that the representor knew or ought to have known that he was being trusted to give the information or advice, the subject matter of the information or advice was of ‘a serious or business nature’, the representor knew or ought to have known that that the representor intended to act upon the information or advice ‘in connexion with some matter of business or serious consequence’, and it was reasonable for the representee to accept and rely on what was said. 25

Presser v Caldwell Estates Pty Ltd [1971] 2 NSWLR 471. Dillingham Constructions Pty Ltd v Downs [1972] 2 NSWLR 49; Ellul (n 23). 27 Sealand of the Pacific v Ocean Cement Ltd (1973) 33 DLR (3d) 625; Walter Cabott Construction Ltd v The Queen (1974) 44 DLR (3d) 82. 28 Capital Motors Ltd (n 24). 29 Esso Petroleum Co Ltd (n 24). 30 Ellul (n 23). 26

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Another case illustrating that the plaintiff will usually need to establish a breach of warranty in order to achieve the desired level of recovery is Sealand of the Pacific v Ocean Cement Ltd.31 The essential facts, for present purposes, were as follows. The plaintiff company wished to raise the level of its sea life display vessel. The defendant’s sales representative advised that the company had a lightweight concrete with a dry density of 30 lbs per cubic foot that would do the job. The plaintiff ordered the concrete and the work was carried out but the concrete turned out to be much heavier than represented with the result that the vessel settled even deeper into the water. The plaintiff claimed damages for negligent misrepresentation and breach of warranty. McKay J, in the British Columbia Supreme Court, found for the plaintiff under both heads. The defendant was liable in tort because it owed and was in breach of a duty of care in giving the advice. It was liable in contract because the representative’s statement amounted to a warranty. McKay J also found that it was an implied condition of the contract under the Sale of Goods Act that the product was reasonably fit for its purpose. As a result, the plaintiff was awarded damages covering, inter alia, the cost of replacing the concrete with a substance that would raise the level of the vessel and the loss of profits for the period the vessel would be out of commission while the new work was carried out. The decision was affirmed by the British Columbia Court of Appeal,32 although it was found unnecessary, in view of the warranty finding, to deal with the negligence issue. An interesting aspect of the decision is the Court’s observation that the plaintiff could not have recovered the cost of replacing the concrete with a substance which would raise the level of the vessel if there had been no breach of contract and the plaintiff ’s claim was solely in negligence. As noted earlier, the object of tort damages is to restore the plaintiff to the position it would have been in if the misrepresentation had not been made. Thus, the plaintiff in Sealand could have recovered the costs of restoring the vessel to its earlier state, but not the added costs of raising its level. The latter costs could, however, be recovered once a warranty was found since the object of contract damages is to put the plaintiff in the position he would have been in if the representation had been true and the consequent benefits accrued. The facts of the Sealand case thus provide a further situation where, even if liability under Hedley Byrne is established, the action in tort will not provide an entirely effective substitute for a breach of warranty action. By contrast, the decision in the New Zealand Supreme Court case of Capital Motors Ltd v Beecham33 illustrates a situation where, in theory, the availability of an action for negligent misrepresentation enables an award of damages greater than the amount recoverable in an action for breach of warranty. Indeed, for damages to be recoverable at all, the plaintiff must sue in tort. The plaintiff (Beecham) had purchased a used car from the defendant motor vehicle dealer in reliance on the salesman’s careless misrepresentation that the car had not had more than two previous owners. He claimed damages in tort for negligent misrepresentation and 31 32 33

Sealand of the Pacific (n 27). Sealand of the Pacific v Robert C McHaffie Ltd (1975) 51 DLR (3d) 702. Capital Motors (n 24).

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in the Magistrate’s Court was awarded $100, being the difference between the price paid for the car and its market value at the time of the purchase. The decision was upheld by Cooke J (as he then was). His Honour held that the essential ingredients for the application of the Hedley Byrne principle were present and that liability was not ruled out by the fact that the statement was made in the course of pre-contract negotiations. On the surface, this case seems like a straightforward example of a situation where application of the tort and contract measures will lead to the same result. The plaintiff had paid $1,400 for a car which had a market value of $1,300 as a result of its having had more than two owners. He recovered in tort the difference of $100. This put him in the position he would have been in if the tort had not been committed and the contract not entered into. Applying the contract measure, the amount required to put the plaintiff in the position he would have been in if the representation had been true was the same, $100. However, it seems that the principal reason for the depreciation in the value of the car was not the fact that it had had more than two owners but that the first owner was a rental-car company. Cooke J said that ‘the succession of owners went back to a rental-car company, the car having been used for rental purposes for about the first 20,000 miles, and the Magistrate found that in the light of this history the true market value was only $1,300’.34 It follows from this that if an action had been brought for breach of warranty, the plaintiff would have been entitled to nominal damages only because the cause of the loss was not the breach of contract. If the representation had been true and the car had had only two owners, he would still have suffered the loss. He had made a bad bargain. The question then arises whether the damages of $100 were recoverable in tort. In other words, was the plaintiff entitled to recoup the loss resulting from his bad bargain by proceeding in tort? It could be argued that damages were not recoverable because there was no causal connection between the misrepresentation and the loss. If the representation had been true the plaintiff would still have suffered the loss. Although a plaintiff can sometimes recoup the consequences of his bad bargain by suing in tort, it must still be shown that the misrepresentation caused some of the loss. In Beecham, Cooke J said that ‘it was reasonably foreseeable … that if it had been known that there were more owners [than two] the market value of the car might well have been diminished’.35 That was certainly so, but on the facts as stated the greater number of owners did not account for the decrease in value. The answer to the question depends on whether, in order to recover damages in tort for misrepresentation, it is enough that the misrepresentation induces an alteration of position (such as entry into a contract) and loss flows therefrom, or whether there must be some more immediate causal connection between the misrepresentation and the loss. I have discussed this question extensively elsewhere36 and the conclusion reached was that, in 34

ibid 581. ibid. 36 D McLauchlan, ‘Assessment of Damages for Misrepresentation’ (1987) 6 Otago Law Review 370, 410−19. 35

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principle and on the balance of authority, the former is the better view. On this basis, Cooke J’s award of damages in Beecham was correct. The plaintiff was induced by the defendant’s misrepresentation to enter into a contract which he would not otherwise have entered into and as a result suffered loss. He paid $1,400 for a car worth $1,300. According to the tort measure of damages he was entitled to be put in the financial position he would have been in if the tort had not been committed, ie, the amount by which the value of the car was less than the price paid.37

C. The Quality of Reasoning Another feature of the early cases is the unconvincing reasoning employed to justify the extension of Hedley Byrne liability to pre-contract representations. This is best illustrated by an analysis of Esso Petroleum Co Ltd v Mardon,38 not only because it became the leading case but also because the judgments of the English High Court and Court of Appeal were the first to contain anything like a full discussion of the issue. It will be recalled that Mr Mardon entered into a tenancy of one of Esso Petroleum’s new petrol stations in reliance on the statement by the company’s representative: ‘we estimate that the throughput of the station in its third year of operation will amount to 200,000 gallons’. This forecast was given carelessly and only about half of the throughput estimated was ever achieved. When Esso sued to recover moneys due under the tenancy agreement Mardon counterclaimed for damages for breach of warranty and negligent misrepresentation. In the Queen’s Bench Division, Lawson J rejected the claim for breach of warranty. Esso’s statement was held to be a mere estimate, not a promise or assurance that the throughput would be achieved. However, his Lordship did find for

37 It might be thought that the plaintiff would not now be able to recover in view of the ruling of the House of Lords in South Australia Asset Management Corp v York Montague Ltd (sub nom Banque Bruxelles Lambert SA v Eagle Star Insurance Co Ltd) [1997] AC 191 that liability in damages for negligently providing inaccurate information is normally limited to the consequences of the information being inaccurate. According to Lord Hoffmann (at 214), the general principle is that ‘a person under a duty to take reasonable care to provide information on which someone else will decide upon a course of action is, if negligent, not generally regarded as responsible for all the consequences of that course of action. He is responsible only for the consequences of the information being wrong. A duty of care which imposes upon the informant responsibility for losses which would have occurred even if the information which he gave had been correct is not in my view fair and reasonable as between the parties. It is therefore inappropriate either as an implied term of a contract or as a tortious duty arising from the relationship between them’. A discussion of the reasons why this principle should not be applied to deny recovery in the kind of situation discussed in the text is beyond the scope of this chapter. They are discussed in my article, D McLauchlan, ‘A Damages Dilemma’ (1997) 12 Journal of Contract Law 114. 38 Esso Petroleum Co Ltd v Mardon [1975] QB 819, [1976] QB 801 (CA). See also, eg, Sealand of the Pacific (n 27) 625 where McKay J saw no particular difficulties in the way of applying Hedley Byrne to pre-contract representations. He referred (at 633) to counsel’s argument ‘that the Hedley Byrne principle did not apply where the relationship of the parties is governed by a contract’ and then simplistically asserted: ‘The short answer is that the representation … was made months before any contractual arrangement was entered into’.

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Mardon on the alternative claim for negligent misrepresentation, holding, inter alia, that a duty of care was not ruled out by the fact that the statement was made in the course of pre-contract negotiations. In the Court of Appeal, Lawson J’s decision on the contract issue was reversed on the ground that, while it was true that Esso had not promised that the throughput would be achieved, their statement did in the circumstances amount to an assurance that the forecast was sound and reliable in the sense that it had been made with reasonable skill and care. However, the judge’s decision on the tort issue was affirmed, in particular, his conclusion that there was no ground for excluding Hedley Byrne liability in relation to precontract misstatements. In the words of Lord Denning MR, the latter case covers this particular proposition: if a man, who has or professes to have special knowledge or skill, makes a representation by virtue thereof to another—be it advice, information or opinion—with the intention of inducing him to enter into a contract with him, he is under a duty to use reasonable care to see that the representation is correct, and that the advice, information or opinion is reliable.39

Lawson J gave two main reasons for his decision on this aspect of the case. First, the speeches in Hedley Byrne did not exclude the duty of care in relation to precontract misstatements.40 Secondly, ‘as a matter of principle’ there was nothing wrong in imposing such a duty.41 Neither of these reasons is satisfactory. With regard to the former, the judge said:42 It is also possible to contend that the observations of the House of Lords in Hedley Byrne … assumed that statements made in pre-contractual negotiations between parties who ultimately came to contract were excluded from the duty of care principle: see, for example, what Lord Reid said, at p 483: ‘Where there is a contract there is no difficulty as regards the contracting parties: the question is whether there is a warranty.’ There are, however, other relevant passages in Hedley Byrne, and, taking the speeches as a whole, in my judgment it is not right to regard Hedley Byrne as containing anything which excludes the duty of care relationship in a pre-contractual negotiation situation. It seems to me that Lord Devlin’s observations, at pp 516−517 and 526−527, are a clear indication to the contrary, because he was dealing in those passages with the situation in which one has running alongside a contractual relationship a relationship which gives rise to a duty of care.

The suggestion that none of their Lordships in Hedley Byrne excluded the duty of care from the pre-contract situation bypassed the central issue. That issue was whether the speeches in Hedley Byrne supported an important qualification of the settled rule that in order to recover damages for non-fraudulent pre-contract misrepresentation, it must be established that the representation was contractually

39 40 41 42

Esso Petroleum Co Ltd v Mardon [1976] QB 801, 820. Esso Petroleum Co Ltd v Mardon [1975] QB 819, 831. ibid 832. ibid 831.

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binding. The answer to that question, as suggested earlier, was that the House of Lords were not only not asked to and did not sanction an undermining of the contract rule, but also they could not do so in view of the binding decision in Heilbut, Symons & Co v Buckleton. By posing the question as being whether the speeches in Hedley Byrne excluded the duty of care from pre-contract negotiations Lawson J subtly shifted the onus onto the representor to establish that Hedley Byrne had not changed the pre-existing law with regard to the warranty requirement. Furthermore, while it may be true that most of their Lordships in Hedley Byrne did not exclude the duty of care from the pre-contract situation, it is not easy to place Lord Reid into this category. His Lordship’s statement, quoted above by Lawson J, was not merely indicative of an assumption on his part that pre-contract statements were excluded from the new principle. It was an express acknowledgement that the warranty requirement remained unaffected. In addition, it is difficult to accept Lawson J’s reliance on Lord Devlin’s speech as positively supporting his conclusion. As stated earlier, Lord Devlin at no stage addressed himself to the pre-contract issue. Lawson J referred to pp 516−17 and 526−27, which he said dealt ‘with the situation in which one has running alongside a contractual relationship a relationship which gives rise to a duty of care’, but a reading of those pages reveals nothing pertinent to the present issue. The judge may have had in mind a later passage43 that arguably indicates that Lord Devlin did envisage certain contractual relationships, such as solicitor and client and banker and customer, giving rise to concurrent duties in contract and tort. However, even so, it is difficult to see how it follows that, because there can be concurrent liability in tort and contract in such cases, there should be liability in tort for pre-contract misrepresentation. The latter is an entirely different situation. There is no contract in existence when the duty of care is said to arise. Further differences will be noted shortly when the Court of Appeal’s decision in Mardon is considered. Lawson J also said:44 As a matter of principle, I cannot think there is anything wrong in holding that the duty of care in relation to the making of statements may arise in a pre-contractual situation. For example, it is well established that a seller of goods which are dangerous, and which are dangerous to the knowledge of the seller, can be liable to the buyer in damages for negligence as well as in damages for breach of the contractual term in relation to the merchantability or fitness of the goods

It is difficult to see how the example provided support for the judge’s ‘matter of principle’ argument. It dealt with a situation where there are complementary and consistent actions in contract and tort. The situation in Mardon, at least as Lawson J viewed it, was the opposite. His Lordship was seeking to impose liability in tort

43 44

Hedley Byrne (n 5) 530. Mardon (n 40) 832−33.

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to pay damages in respect of a statement that the law of contract declared did not give a right of action in damages. He was seeking to override the contract rule by imposing tort liability. A more appropriate example in the context of his judgment would have been one that led him to the opposite conclusion: the sale contract that unequivocally excludes liability for negligence. It is well established that in such a situation the exemption clause cannot be overcome simply by suing in tort. The example given by the judge involves a situation where an action may be brought in contract and tort to enforce dissimilar duties, albeit arising from the same facts. How did it support extending the Hedley Byrne principle to pre-contract representations? It begged the very question in issue as to whether there was a tort of negligent pre-contract misrepresentation. It is easy to accept that the same set of facts may sometimes give rise to dual liability in contract and tort, but this did not justify permitting a representee to sue in tort for damages in respect of a misrepresentation that the law of contract declared did not give a right to damages. Turning now to the decision of the Court of Appeal upholding Mardon’s claims in both contract and tort, the main submission by counsel for Esso against the application of Hedley Byrne was that ‘when the negotiations between two parties resulted in a contract between them, their rights and duties were governed by the law of contract and not by the law of tort’.45 They relied particularly on the decision in Clark v Kirby-Smith,46 which held that a negligent solicitor may be liable to his client in contract but not in tort. They might also, as Lord Denning pointed out, have relied on Bagot v Stevens Scanlon & Co Ltd,47 which applied the same principle to architects. The reasoning behind these decisions was that, since the allegations against the defendants were of failures to do the very things they had contracted to do, the only duties allegedly broken were contractual and the plaintiffs’ actions therefore sounded in contract alone. Earlier cases in which it was held that a similar duty of care was owed both under contract and independently of contract were explained as ‘cases where the law in the old days recognised either something in the nature of a status like a public calling (such as common carrier, common innkeeper, or a bailor and bailee) or the status of a master and servant’.48 In such cases, ‘there existed from the mere status a relationship which gave rise to a duty of care not dependent upon the existence of a contract between the parties’.49 That principle did not apply to professional relationships such as that between architect and client and solicitor and client ‘where someone undertakes to exercise by contract his professional skill in relation to the matter’.50

45 46 47 48 49 50

Mardon (n 39) 819. Clark v Kirby-Smith [1964] Ch 506. Bagot v Stevens Scanlon & Co Ltd [1966] 1 QB 197. ibid 204−05 (Diplock LJ). ibid 205. ibid.

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Lord Denning, with whose judgment on this point the other members of the Court implicitly agreed,51 rejected counsel’s argument and held that Clark and Bagot were52 in conflict with other decisions of high authority which were not cited in them. These decisions show that, in the case of a professional man, the duty to use reasonable care arises not only in contract, but is also imposed by the law apart from contract, and is therefore actionable in tort.

The true position was as stated by Lord Campbell in Boorman v Brown:53 [W]herever there is a contract, and something to be done in the course of the employment which is the subject of that contract, if there is a breach of a duty in the course of that employment, the plaintiff may either recover in tort or in contract.

In Lord Denning’s view, it followed that, since Clark and Bagot were wrong, counsel’s argument that Hedley Byrne did not apply to pre-contract representations must be rejected. His Lordship’s views on concurrent liability were, of course, vindicated by later cases, most notably by the House of Lords in Henderson v Merrett Syndicates Ltd54 (despite Lord Goff ’s remark that the judgments in Mardon ‘reveal no analysis in depth of the basis upon which concurrent liability rests’).55 Nevertheless, the question can still be asked: if the law is that a professional who fails in his duty to exercise reasonable care can be sued in contract or tort, did this justify extending the Hedley Byrne principle to pre-contract representations? In other words, did it necessarily follow that, because there can be concurrent liability in contract and tort in cases of professional negligence, there should be liability in tort for pre-contract representations? To my mind, the answer to this question is no. The decision in Mardon undoubtedly settled the common law position but the reasoning does not survive close scrutiny. The cases that uphold the professional’s concurrent liability in contract and tort cannot logically be appealed to as supporting the availability of an action in tort in respect of careless pre-contract misrepresentations. Basically, such reasoning begs the essential question whether there is such a tort. Furthermore, the two situations are entirely different. Under the professional negligence cases, where a breach of contract occurs that also happens to satisfy the ingredients of the tort of negligence, the plaintiff may proceed alternatively in contract and tort. The action in tort is founded on the defendant’s failure to do the very thing he contracted to do. It follows that the plaintiff cannot succeed in tort if the alleged breach of duty did not constitute a breach of contract. The extent of the tort duty will depend upon

51 Henderson v Merrett Syndicates Ltd [1995] 2 AC 145, 187. See also the careful analysis of the judgments by Oliver J in Midland Bank Trust Co Ltd v Hett, Stubbs & Kemp [1979] Ch 384, 428−32. 52 Mardon (n 39) 819. 53 Boorman v Brown (1844) 11 Cl & Fin 1, 44, quoted in Mardon (n 39) 819. 54 Henderson (n 51) [1995] 2 AC 145. See also, eg, Batty v Metropolitan Property Realisations Ltd [1978] QB 554 and Midland Bank Trust Co Ltd (n 51). 55 Henderson (n 51) 188.

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an analysis of the terms of the contract. There is no doubt that if, for example, the terms of the contract clearly limit the obligations and responsibilities undertaken, those terms cannot be circumvented by bringing an action in tort.56 Contrast the situation where an action is brought for negligent misrepresentation inducing a contract. The alleged duty of care must arise independently of the obligations undertaken pursuant to the contract. There is simply no contract in existence when the alleged duty of care arises and is breached. In other words, the negligence, when it occurs, does not constitute a breach of contract. Furthermore, even if one were to disregard this technicality, the action in tort is still not based on the defendant’s breach of contract. Indeed, in the usual case, the alleged tort and contract duties are dissimilar. The contractual obligation is that the representation is true. Once it is proved that the representation was a warranty and that it was false, the representor is strictly liable. In tort, however, the duty is different. The plaintiff must establish, in addition to acceptance of responsibility, reliance and falsity of the statement, that the defendant failed to take reasonable care. The Mardon situation was one of the few exceptions. There the alleged tort and contract duties did coincide. The actionable representation/warranty was not that the petrol throughput would be achieved but that the estimate was based on reasonable grounds. Finally, if the professional negligence cases are the basis for imposing liability in tort in respect of negligent pre-contract misrepresentations, strictly it would follow that plaintiffs would first have to establish that the representation was contractually binding, ie, a warranty or a collateral contract. Of course, in most cases that would defeat the very purpose of their proceeding in tort, which is to avoid having to establish that the representation was contractually binding. It is interesting that in Mardon all of the judges decided the question of tort liability on the assumption that no warranty had been given.57 This suggests that the two alternative causes of action were mutually exclusive. If the professional negligence cases were the explanation for tort liability in respect of careless pre-contract misrepresentation then, on the judges’ assumption of no contractual liability, it was logically impossible to find for Mr Mardon.

56 ‘A concurrent or alternative liability in tort will not be admitted if its effect would be to permit the plaintiff to circumvent or escape a contractual exclusion or limitation of liability for the act or omission that would constitute the tort’: Central Trust Co v Rafuse (1986) 31 DLR (4th) 481, 522 (Le Dain J). See also Henderson v Merrett Syndicates Ltd (n 51) 191. 57 Mardon (n 39) 818 (Lord Denning), 827 (Ormrod LJ), and 832 (Shaw LJ). But cf Midland Bank Trust Co Ltd (n 51) 431−32 where Oliver J said that their Lordships did not intend to suggest that the causes of action were mutually exclusive. He thought that Lord Denning, despite saying that the question of Esso’s liability for negligent misstatement was being considered ‘assuming that there was no warranty’, ‘made it perfectly clear … that he regarded the duties in contract and tort as interchangeable and co-existing’. In his view it was also clear ‘that Ormrod LJ and Shaw LJ were of the same view, for they both emphasised that the critical factor was the nature of the relationship not the manner of its origin’.

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IV. The Advantages of a Tort Claim Despite its dubious provenance, it is undeniable that the availability of a tort action in respect of pre-contract negligent misrepresentation may have some remedial advantages from the plaintiff ’s point of view. For example: the limitation period for bringing an action for breach of warranty may have expired, but not that for an action in tort; as we have seen, sometimes the tort measure of damages may lead to a greater recovery; similarly, it may be easier to satisfy the tort test for remoteness of damage than the contract test in a case involving ‘unusual’ loss; and an entire agreement clause contained in a written contract might be effective to bar an action for breach of an oral warranty58 but not an action for misrepresentation (although it should be noted that the English courts have held on numerous occasions in recent times that a clause acknowledging that no representations were made or that no representations were relied on precludes such an action on the basis of a so-called ‘contractual estoppel’).59 However, such advantages can be exaggerated. Much will depend on one’s understanding of what the law of contract prescribes. Indeed, it is often the case that, when a rule of the law of contract appears to dictate an answer that unjustly deprives a party of relief, there is an exception to, or some other way of circumventing, that rule.60 Be that as it may, the reality is that in the great majority of cases plaintiffs will be better placed if they are able to establish that the representation was a contractually binding warranty due to the availability of loss of bargain damages enabling them to recover the amount of damages that will put them in the position, so far as money can do so, that they would have been in if the representation had been true, as opposed to tort damages for the consequences of

58 See generally D McLauchlan, ‘The Entire Agreement Clause: Conclusive or A Question of Weight?’ (2012) 128 LQR 521. 59 The leading cases are Peekay Intermark Ltd v Australia & New Zealand Banking Group Ltd [2006] EWCA Civ 386, [2006] 2 Lloyd’s Rep 511 and Springwell Navigation Corp v JP Morgan Chase Bank [2010] EWCA Civ 1221, [2010] 2 CLC 705. 60 Particularly pertinent in the present context is a line of well-known, but apparently anomalous, decisions of the English Court of Appeal allowing oral warranties to override the terms of exclusion clauses: see Couchman v Hill [1947] KB 554; Harling v Eddy [1951] 2 KB 739; Mendelssohn v Normand Ltd [1970] 1 QB 177; J Evans & Sons (Portsmouth) Ltd v Andrea Merzario Ltd [1976] 1 WLR 1078. It is not difficult to envisage a case involving a contract containing a wide-ranging exemption clause that was induced by negligent misrepresentation where the law of contract, not the Hedley Byrne principle, will come to the plaintiff ’s rescue. A court might, applying the current authorities, hold that the tort claim must fail because the effect of the clause is to disclaim responsibility, whereas the claim in contract succeeds because the oral representation constituted an overriding oral warranty. (Admittedly, these two findings, when subjected to close scrutiny, would not easily stand together. How could a court consistently find (a) with regard to the tort claim, that the clause in the contract indicated non-assumption of responsibility or amounted to an agreement excluding liability in tort yet, at the same time, (b) with regard to the action in contract, that the parties ‘intended’ the representation to be part of their contract and the exemption clause to be subject to it?).

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their being wrongfully induced to enter into the contract in question. But, more importantly, there will usually be no need for the court to invoke the Hedley Byrne principle in order to enable it to do justice between the parties through an award of damages. This is because the contract rules have now developed to a stage where they are sufficiently flexible to enable damages to be awarded for pre-contract misrepresentation in appropriate cases by holding that the representation was a term of the contract or a separate collateral contract. Indeed, as will be briefly discussed below, it is difficult to imagine circumstances where, if the tort test of liability is satisfied, the statement cannot be held to be contractually binding.

A. The Contract and Tort Requirements for Liability The well-established test for determining whether a pre-contract statement is contractually binding is, of course, ‘the intention of the parties’. The question the court must ask itself is: did the parties intend the statement to be a term of their contract? Here, as elsewhere in the law of contract, the courts adopt an objective approach. ‘If an intelligent bystander would reasonably infer that a warranty was intended, that will suffice’.61 Under the guise of this test of intention the real question that the courts ask themselves is: is it reasonable to regard the representor as having accepted contractual responsibility for the accuracy of his statement? There are several well-known factors that the courts take into account in reaching their decisions and, of these, one of the most important is the respective skill and knowledge of the parties.62 If the representor has a special skill or has greater knowledge or means of knowledge with respect to the subject matter of the statement than the representee, this will strongly support a conclusion that it is reasonable to regard him as accepting contractual responsibility for the accuracy of his statement. Conversely, the fact that the representor was not in a better position will be adverse to such a conclusion, although not conclusive. In the latter situation, it may only be reasonable to regard the representor as merely expressing an opinion on the matter. Nowadays, where it is found that the representor ought to be regarded as having accepted responsibility for his statement, there are few obstacles in the way of the court concluding that the statement was contractually binding and then proceeding to award damages.63 If a statutory writing requirement applies it can be easily overcome by the court classifying the statement, not simply as a term of the contract, but as a separate collateral contract. Furthermore, the parol evidence

61

Oscar Chess Ltd v Williams [1957] 1 WLR 370, 375 (Denning LJ). See, eg, Schawel v Reade [1913] 2 IR 64, 86 (Lord Moulton). 63 Indeed. Lord Denning, speaking extra-judicially with typical frankness, went so far as to suggest ((1967) 41 Australian Law Journal 293): ‘Whenever a judge thinks that damages ought to be given, he finds that there was a collateral contract rather than an innocent misrepresentation. In practice when I get a representation prior to a contract which is broken and the man ought to pay damages I treat it as a collateral contract. I have never known any of my colleagues to do otherwise’. 62

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rule, which prohibits the addition of oral terms to written contracts, is no longer the force it used to be. The courts either disregard it altogether, as in Mardon, or find that it does not apply either because the statement is a term of a partly written and partly oral contract or a collateral contract.64 It should now be apparent that the test for contractual liability in respect of misstatements inducing the contract is similar to the basic test for liability under the Hedley Byrne principle. As we have seen, there will be a ‘special relationship’ under Hedley Byrne giving rise to a duty of care where the speaker can in all the circumstances reasonably be regarded as assuming responsibility for the statement.65 Of course, the tests do not correspond exactly, but they are surely close enough to at least require some explanation for a finding that a statement (a) was not contractually binding but (b) was made in circumstances satisfying the tort requirements for liability. No such explanation appeared, for example, in the judgment of Lawson J in Mardon where his Lordship held, in effect, that Esso had assumed responsibility in tort but not in contract. The overlap is readily apparent from Lord Denning’s description of Hedley Byrne liability in relation to pre-contract misstatements quoted earlier66 and the following well-known description of the usual characteristics of a special relationship by Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt:67 It seems to me that it is this element of trust which the one has of the other which is at the heart of the relevant relationship. I should think that in general this element will arise out of an unequal position of the parties which the recipient reasonably believes to exist. The recipient will believe that the speaker has superior information, either in hand or at hand with respect to the subject matter or that the speaker has greater capacity or opportunity for judgment than the recipient.

Indeed, arguably there is only one important difference between the contract and tort requirements. In a negligent misstatement action, the plaintiff must prove that the defendant assumed responsibility for the statement not ‘in the sense that he warrants its accuracy’ but ‘in the sense that he must use due care in making it’.68 Accordingly, the tort ‘assumption of responsibility’ is for something less than the usual contract assumption of responsibility, which is for the accuracy of the statement. In an action for breach of contract, once the statement is found to be a term,

64 See, for further explanation, D McLauchlan, ‘The Entire Agreement Clause: Conclusive or A Question of Weight?’ (2012) 128 LQR 521, 526−30. 65 Misgivings have often been expressed concerning the appropriateness of ‘assumption of responsibility’ as a test for determining liability in negligence: see Robertson and Wang, Chapter 3, but contrast Beever, Chapter 4. However, there can be little doubt that it will continue to be employed in the kind of cases discussed in this chapter where there is clearly a sufficient relationship of proximity between the parties. 66 Text above n 39. 67 Evatt (n 24) 571. 68 McInerny v Lloyds Bank Ltd [1974] 1 Lloyd’s Rep 246, 253 (Lord Denning MR). See also Hedley Byrne [1964] AC 465, 486 where Lord Reid said that the question is whether the speaker accepted ‘responsibility for his answer being given carefully’.

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the defendant is liable even if reasonable care was exercised.69 The plaintiff in a Hedley Byrne claim must prove not only that the statement was false but also a failure to exercise reasonable care. In view of this difference, it might be argued that there could be cases where a representor can reasonably be regarded as undertaking a duty to take care but not as guaranteeing the truth of his statement. Is this a situation where Hedley Byrne provides a cause of action that otherwise would not exist? Interestingly, Honoré, in his early commentary on Hedley Byrne, gave the following example of a situation where, there being no contractual liability for the misstatement, Hedley Byrne comes to the representee’s rescue and affords a remedy in damages:70 Finding an electrical fault I send for the electrician. After examining my house from top to bottom he says ‘Your whole house needs rewiring and I can do it for £100’. I agree. In fact, the old wiring was perfectly sound. Here, faced with the bleak choice between saying that the electrician’s statement was a contractual warranty and that it was a mere representation, a court might well hesitate. It may be happy to conclude that the proper inference from the circumstances is that the electrician assumes responsibility for having made a careful inspection of the wiring before he proffers his advice. It is too much to say that he guarantees the correctness of what he says, but certainly he should take care.

The example is not a particularly well-chosen one. It is questionable whether it is unreasonable to regard the electrician as guaranteeing the correctness of his statement. Furthermore, it would seem that there was an existing contractual relationship between the parties at the time of the inspection and the making of the statement that would have obliged the electrician, by way of a term implied by law, to exercise reasonable care. However, ignoring these points and regarding the situation as one where there was a careless pre-contract statement which was not warranted accurate, this is still not a situation where Hedley Byrne gives a cause of action that otherwise would be unavailable. A decision that the electrician was not binding himself to the accuracy of his statement would appear to be sustainable only on the basis that he was merely expressing his opinion on the matter. It is well established, however, that where a statement of opinion is made by a person who is in a better position to know the facts, that statement of opinion will be taken to carry with it an actionable representation of fact that there are reasonable grounds for the opinion. Thus, statements that a house is ‘let to a most desirable tenant’,71 that an annuitant ‘is believed

69 cf the suggestion by Lord Denning in Dick Bentley Productions Ltd v Harold Smith (Motors) Ltd [1965] 2 All ER 65, 67 that the inference of warranty can be rebutted by the representor proving absence of fault in making the representation. However, given that the accepted test for whether there is a warranty is the intention of the parties at the time when the contract is formed, it is difficult to see how a subsequent finding that the representor was without fault can be relevant. It cannot change the supposed intention which the parties possessed at the time of making the contract. It relates to an entirely different issue. 70 Honoré (n 8) 297. 71 Smith v Land and House Property Corp (1884) 28 Ch D 7.

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to have no aggregable estate’,72 and that a ship is ‘expected ready to load’73 have each been held to constitute a representation that there were reasonable grounds for holding the opinion. The important point to note in the present context is that, if a statement of opinion can constitute an actionable representation in the above sense, there is no reason why a court could not, in appropriate circumstances, elevate the representation to the higher category of a term of the contract. Thus, returning to the electrician example, if he did not warrant the need for rewiring, it could be held that the statement amounted to a representation and warranty that reasonable care had been exercised. Accordingly, the situation is not one where the application of Hedley Byrne is required in order to make available the remedy of damages. Of course, support for the above analysis is to be found in the Mardon case where the Court of Appeal held on the facts that there was co-extensive liability in contract and tort. Although in some respects the discussion of the contract issue was unsatisfactory,74 the decision did highlight the flexibility of the modern law of contract with regard to the finding of warranties. As noted earlier, it was held that the petrol throughput estimate carried with it the representation of fact that it was based on reasonable grounds and, furthermore, that representation, in the circumstances, constituted a contractually binding warranty. In other words, the lack of reasonable grounds for the estimate amounted to a breach of contract. In summary, it is suggested that ordinarily there will be no need to invoke Hedley Byrne in order for the aggrieved party to be able to recover damages in respect of a pre-contract misrepresentation. Where the tort test of liability is satisfied and the representor has assumed a responsibility to exercise reasonable care, the same circumstances should normally also lead to a finding of a warranty, if not that the statement itself is accurate, then at least that it is based on reasonable grounds. In the majority of such cases, however, the representee will be able to establish that the representor assumed responsibility for the accuracy of the statement, thus making the action in contract more advantageous to the representee in that the representor is strictly liable. Interestingly, although in Mardon Ormrod LJ could ‘see no reason why an action in negligence should not be available in a proper case’, he did immediately point out that [m]uch will depend upon how the law on warranties is applied. If a restrictive view is taken, there will be room for this cause of action; but, if not, most, if not all, misstatements which fall within the Hedley Byrne principle are likely to be regarded as warranties.

72

Brown v Raphael [1958] Ch 636. The Mihalis Angelos [1971] 1 QB 164. 74 The parol evidence rule was ignored and the judgments were bedevilled by references to the statement being variously a warranty, a collateral warranty and a collateral contract. Furthermore, both Ormrod LJ ((n 39) 826) and Shaw LJ ((n 39) 831) regarded the well-known decision of the Privy Council in Bisset v Wilkinson [1927] AC 177 as involving an action for breach of warranty, whereas in fact the defendant purchaser was seeking rescission of the contract in equity on the ground of the plaintiff ’s innocent misrepresentation. 73

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V. The New Zealand Reform As discussed above, it was well established by around the mid-1970s that negligent misrepresentation provided a possible alternative cause of action in respect of misstatements inducing a contract between the representor and representee. However, within a relatively short time it was abolished by the New Zealand Parliament and controversially replaced by a statutory cause of action. The Contractual Remedies Act 1979, which has no counterpart in any other common law jurisdiction, set out to rationalise and simplify the law of contract, principally by giving substantially the same remedies for misrepresentation inducing the making of a contract and for breach of contract. The key provision of the Act for present purposes is section 6(1) which states: If a party to a contract has been induced to enter into it by a misrepresentation, whether innocent or fraudulent, made to him by or on behalf of another party to that contract— (a)

(b)

He shall be entitled to damages from that other party in the same manner and to the same extent as if the representation were a term of the contract that has been broken; and He shall not, in the case of a fraudulent misrepresentation, or of an innocent misrepresentation made negligently, be entitled to damages from that other party for deceit or negligence in respect of that misrepresentation.

Thus, a contracting party who seeks to recover damages from the other party in respect of a misrepresentation made ‘by or on behalf ’ of the other party that induced entry into the contract is no longer required to establish fraud, negligence, breach of warranty or breach of a collateral contract. Damages can now be claimed for a purely ‘innocent misrepresentation’ and these damages are to be assessed as if the representation were a broken term of the contract. In addition, the common law actions for damages in respect of both pre-contract fraudulent and negligent misrepresentation are abolished.75 It is important to note, however, that it is only

75 Section 6 therefore differs substantially from s 2(1) of the Misrepresentation Act 1967 (UK). First, under the latter, representors can escape liability by proving that they had reasonable grounds for their statements. Section 6 gives no such defence, unless of course the representation is that there are reasonable grounds for, say, a statement of opinion. Secondly, the measure of damages under s 2(1) is the tort measure, although it is not yet settled whether the more liberal approach to assessing damages for fraudulent misrepresentation is applicable: see Yam Seng Pte Ltd v International Trade Corp Ltd [2013] EWHC (QB), [2013] CLC 662 [204]−[206]. Thirdly, s 2(1) does not abolish the actions for pre-contract fraudulent or negligent misrepresentation. The relative simplicity of s 6 can be illustrated by applying it to the facts of Howard Marine and Dredging Co Ltd v A Ogden & Sons (Excavations) Ltd [1978] QB 574 (ignoring for present purposes difficulties created by the exclusion clause). In brief, the facts were that Ogdens hired two barges from Howards relying on the latter’s representation that the carrying capacity of each barge was 1,600 tonnes. The representation was grossly inaccurate and Ogdens claimed damages, alleging breach of warranty, common law negligent misrepresentation and misrepresentation under s 2(1). After a complicated argument, Ogdens succeeded under the latter cause of action only. In New Zealand, under s 6, they would merely have to prove that the statement of fact as to capacity was false and relied on.

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the contracting party responsible for the misrepresentation who is liable under the section and who cannot be sued in tort. As a result, the personal tort liability of an agent or other third party is unaffected. For example, real estate agents whose representations within the scope of their actual or apparent authority render their principals liable under section 6 continue to be liable for negligent misrepresentation. And, as we shall see, if they acted in breach of the agency contract, they may end up having to indemnify their clients for the loss of bargain damages awarded to the purchasers. Such damages may be substantially in excess of the amount awarded against them if the purchasers were suing them directly in tort. The above measures were seen as essential if the objective of simplifying the law by providing a common set of remedies for misrepresentation and breach of contract was to be fully implemented. Nevertheless, as I unsuccessfully argued in my submissions to the parliamentary select committee, the enactment of section 6, although well intentioned, was misguided. I say this for two main reasons, both related to the decision to provide that damages are to be assessed on the assumption that the misrepresentation was a broken term of the contract, whether that misrepresentation be purely innocent, negligent or fraudulent.

A. The First Objection The section fails to pay due regard to the fact that the essential complaint of victims of misrepresentation is that they have been wrongfully induced to enter into contracts that they would not have entered into if the truth had been told. An award of damages should therefore aim to provide reparation for the resulting harm. Assuming that the representation was not made a term of the resulting contract, the complaint is not ‘you broke your promise and you must put it right’ but ‘your misrepresentation induced me to take action that I would not otherwise have taken, and that action has cost me—you must pay for the loss resulting from my reliance on your representation’. Measuring damages on the former basis necessarily requires the court to ask ‘what loss flows from the lack of truth of the representation treated as a term of the concluded contract?’, whereas doing so on the latter basis requires it to ask ‘what loss flows from entry into the contract induced by the misrepresentation?’. Since section 6 provides that damages are to be awarded ‘in the same manner and to the same extent as if the representation were a term of the contract that has been broken’, it follows that they are to be measured on the former basis. And, while this will often lead to greater recovery (sometimes unfairly, as we shall see below), on some occasions it will, in theory at least, result in the denial of any compensation. For example, the award of damages in Capital Motors Ltd v Beecham that was discussed earlier76 could no longer be made: it was the fact that the first

76

See text following n 33 above.

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owner was a rental-car company, not that it had had more than two owners, that was the reason for its diminution in value. There may also be situations where the representation operates as an important inducement but concerns a ‘collateral’ matter—ie, a matter that does not relate to the condition or value of the subject matter of the contract or the benefit/burden of the contract. For example: P is induced to buy shares in a mining company by D’s negligent (or fraudulent) misrepresentation that X, a wealthy entrepreneur known to P, has invested in the company. P loses all her money when the company collapses. It would still have collapsed even if X had invested. P buys D’s house for $500,000 relying on D’s misrepresentation that the house is situated within the zone of a school that P is particularly anxious to send her children to. The actual value of the house is $450,000 and the reputation of the school is not such that the house would have been worth more if D’s representation had been true.

In both of these examples no damages are recoverable under section 6 for the loss suffered by P even though that loss would have been avoided if the truth had been told. Consider also the following situation where some damages will be recoverable but much less than the amount recoverable in tort if breach of a duty of care or deceit were established: P is induced to buy a block of land from D by D’s misrepresentation that half of the land is covered with millable timber. P buys the land for $100,000. It transpires that there is only a one-quarter coverage of millable timber. As a result, the land is worth $60,000. However there is evidence that, if the representation had been true, it would still only have been worth $80,000. Prima facie P might previously have recovered damages of $40,000 under the tort measure, but she now recovers only $20,000 under the contract measure embodied in section 6.77

Further, a variation to these facts would result in an even greater discrepancy between the two measures. Suppose that P can establish that, but for D’s misrepresentation, she would have offered and D would have accepted a price of $50,000. Here the damages recoverable in tort prior to the Act would be the difference between the price paid and the price she would have paid if the true position had been disclosed ($100,000−$50,000).78 Finally, the ‘benefit of the bargain’ approach embodied in section 6 may also be completely unworkable or lead to unacceptable results even in situations where the representation does relate to the condition or value of the subject matter of

77 Of course, if the court were to follow the approach of the House of Lords in South Australia Asset Management Corp (n 37) tort liability would be limited to the consequences of the information being inaccurate, here $20,000. 78 P could recover this amount in tort even if the actual value of the land was the same as or more than the price paid: Clef Aquitaine SARL v Laporte Materials (Barrow) Ltd [2001] QB 488.

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the contract. The following example, modelled on an illustration given in the Restatement (Second) of Torts,79 highlights the difficulties:80 The owner of a valuable piece of china is induced to sell it for $100 by a representation that it has certain defects that make it practically worthless. If the damages are assessed by comparing the representee’s actual position with the position he would have been in if the representation had been true, the result is that she has suffered no loss. She would have sold worthless property for a very good price.

It is inconceivable that a court would refuse to grant damages under section 6 of the difference between the actual value of the china and the price received, but precisely how it could justify this award in view of the words of the section is a matter of some difficulty.

B. The Second Objection The second objection to section 6 is that, in the more usual situation where the availability of the equivalent of loss of bargain damages will result in recovery of a larger sum than that recoverable under the tort measure, such damages will sometimes result in the imposition of an unfair burden on the defendant. Consider the following variation on the example given above: P is induced to buy a block of land from D by the negligent misrepresentation of D’s (now insolvent) real estate agent that half of the land is covered with millable timber. P buys the land for $100,000. It transpires that there is only a one-quarter coverage of millable timber. The land is still worth $100,000, but, if the representation had been true, it would have been worth $200,000. In the absence of a proven lost opportunity to pay less for the land, P would previously have recovered no damages under the tort measure, but she now recovers the substantial sum of $100,000 under the contract measure embodied in section 6.

It might be objected that this is not an unfair burden to impose on D because P could possibly recover the same amount at common law by establishing that the representation gave rise to a collateral contract. However, it needs to be borne in mind that it was D’s real estate agent who made the representation and that, while such agents normally have apparent authority to make representations about the subject matter, they do not have apparent authority to bind their principals contractually. The point can be further illustrated by the decision of the New Zealand Supreme Court, now the country’s highest court, in Marlborough District Council v Altimarloch Joint Venture Ltd,81 a case where the relevant representation was also made by

79

(St Paul, Minn., ALI, 1965) Comment (g) to s 549. cf for a similar situation Gray v Trick 220 NW 741 (1928) where damages for fraudulent misrepresentation were awarded on the basis of the difference between actual value of the property and the price received. See also Erde v Fenster 141 NY Supp 943 (1913), noted (not altogether accurately) in (1942) 55 Harvard Law Review 1023−24. 81 Marlborough District Council v Altimarloch Joint Venture Ltd [2012] 2 NZLR 726. 80

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agents who had no authority to bind their principals contractually. The case was difficult, with multiple parties involved, but the relevant facts can be simplified for present purposes without losing their essential flavour. Altimarloch purchased a block of rural land for a price of $2.675m with a view to establishing a viticulture business. They did so after being assured (negligently) by the vendors’ estate agent and solicitors that the land had resource consents enabling them to extract 1,500 cubic metres of water a day from a stream for irrigation. In fact, the resource consents only allowed extraction of 750 cubic metres a day. The evidence established that the actual value of the land was therefore $2.55m and that it would have been worth $2.95m if the representation had been true. Altimarloch discovered the shortfall in water rights when they started planting the grape vines and later issued proceedings seeking, inter alia, damages from the vendor under section 6 of the Contractual Remedies Act. The Supreme Court, by a 3-2 majority, upheld the award by the lower courts of more than $1m, representing the cost of purchasing additional water rights that covered some of the shortfall and the cost of building a dam to store water for the future, which was the only way of securing the remainder of the shortfall. This award was probably correct in view of the fact that section 6 deems a misrepresentation to be a broken term of the contract for the purposes of damages assessment. This was not a Ruxley82 case where the cost of cure was so out of proportion to the benefit to be gained as to be unreasonable. However, the correctness of the decision is not our present concern, which is to point to a flaw in section 6 because it can lead to exorbitant awards and unfair burdens being placed on defendants. Three points are perhaps worth making. First, the negligent agents, who were joined as third parties by the vendors, were ordered to indemnify the vendors so, in effect, they ended up paying loss of bargain damages for a negligent misrepresentation. If they alone had been sued by the purchasers, perhaps because the vendors were insolvent or had left the country, their liability would prima facie have been the comparatively modest sum of $125,000, the difference between price paid and value. Secondly, let us suppose that the agents had been insolvent or otherwise not worth suing. The vendors, who were completely innocent and made no promise as to the extent of the available water rights, would have had to pay more than $1m from their own pocket, thus depriving them of 40 per cent of the value of the no doubt hard-earned asset they had sold. Thirdly, it can be surmised that the instinct of the dissenting judge, Elias CJ (with whom Anderson J agreed), was that an award of over $1m would be entirely unjust in the circumstances. Her Honour referred at different stages of her reasoning to the disparity between that sum and both the price paid/actual value differential ($125,000) and the difference between the value of the land with and without the represented values ($400,000).83 While neither factor provided a convincing basis for her eventual conclusion that, as in

82 83

Ruxley Electronics and Construction Ltd v Forsyth [1996] 1 AC 344. Marlborough District Council (n 81) [32] and [41].

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Ruxley, an award of the full cost of cure would be unreasonable, there can be no doubt where the judge’s sympathies lay. Perhaps some of her reasoning might have been better directed to a call for a reconsideration by Parliament of the provision for loss of bargain damages in section 6.

VI. Impact of the Fair Trading Act 1986 In concluding this chapter, it remains to note the other statutory reform affecting Hedley Byrne liability in New Zealand, which is contained in the Fair Trading Act 1986. By far the most important section is section 9 which provides that ‘No person shall, in trade, engage in conduct that is misleading or deceptive or is likely to mislead or deceive’. The civil consequences of contravening this section are spelled out in section 43. The courts are given a broad discretion to make a variety of orders where a person ‘has suffered, or is likely to suffer, loss or damage’ as a result of offending conduct. These include an order directing the person who engaged in the conduct to pay to the person who suffered the loss or damage ‘the amount of the loss or damage’.84 So far as liability for negligent misstatement generally is concerned (ie, ignoring situations affected by the Contractual Remedies Act 1979), it has been argued that the effect of the above provisions, and their Australian counterparts, which in effect create a statutory strict liability tort, is to render the common law action more or less redundant for many practical purposes.85 A discussion of this matter is obviously beyond the scope of this chapter, but it is perhaps worth pointing out one important reason why in New Zealand it may be advantageous for the plaintiff to pursue, if only in the alternative, the common law action. Unlike in Australia, there is no right to damages for loss caused by misleading conduct. An award can only be made under section 43, which, as the Court of Appeal has stressed,86 gives the courts a discretion not only as to whether to make a monetary award but also as to its quantum. Thus, even where an award is considered appropriate, there is no entitlement to full recovery in respect of the loss suffered.87 84

Section 43(3)(f). See, eg, Todd (n 24) 247 (‘a major derogation from common law principle’) and N Seddon, R Bigwood and M Ellinghaus, Cheshire and Fifoot’s Law of Contract, 10th Australian edn (Sydney, LexisNexis, 2012) 579 (‘The action in damages for negligent misrepresentation has in many circumstances been effectively displaced by an action for misleading conduct under the misleading conduct legislation…’). 86 Goldsbro v Walker [1993] 1 NZLR 394. 87 Interestingly, during the passage of the Bill through the House, Parliament deleted a clause modelled on s 82 of the Australian Trade Practices Act 1974 (Cth) which would have conferred a right to damages. The deletion was probably a mistake. It seems that the Departmental officials responsible for the Bill misread a reference in an Australian textbook to the overlap between ss 82 and 87 (the Australian equivalent of s 43) as suggesting that the former was superfluous. There was no conscious policy decision that damages for misleading conduct should not be available as of right. Rather there was a misguided attempt to simplify the Bill by striking out an unnecessary provision. 85

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However, the main feature of the Fair Trading Act for the purposes of this chapter is that no attempt was made to harmonise the new scheme of remedies with the reforms of the general law of misrepresentation effected by the Contractual Remedies Act. It seems that the very existence of the latter, and in particular the right to recover damages under section 6 as if the misrepresentation were a breach of contract, was completely overlooked in the rush by the new Labour government to copy the Australian Trade Practices Act 1974 (Cth). Parliament’s intention just seven years earlier to rationalise and simplify the law of misrepresentation was thus unwittingly undermined. Nowadays, where a pre-contract misrepresentation is made ‘in trade’, the representee will often be able to pursue alternative causes of action under both statutes with a view to choosing the most advantageous award of damages. Although the award is discretionary, sometimes this might be the Fair Trading Act damages assessed in accordance with, or by analogy to, the tort measure.88

88

Cox & Coxon Ltd v Leipst [1999] 2 NZLR 15.

13 Negligent Misstatement in Australia—Resolving the Uncertain Legacy of Esanda KIT BARKER

I. Introduction The process via which Hedley Byrne & Co Ltd v Heller & Partners Ltd1 entered the Australian law of negligent misstatement has been described in Warren Swain’s excellent historical analysis in Chapter 1 of this volume. Since that time, Australian courts have certainly drawn upon the case regularly and with approval, but they have also forged their own paths. In the misstatement field, they now more regularly refer to the judgments of their own leading judicial lights (in particular Barwick CJ and Brennan CJ), than to the individual speeches in Hedley Byrne itself. They have also developed a more generous and more flexible approach to the recovery of pure economic losses generally than exists in UK law. Occasionally, this development has built on the ‘Hedley-Byrne concepts’ of ‘assumption of responsibility’ and ‘reliance’, but by no means always and the High Court has in fact tended to be sceptical of the language of voluntarism for reasons we shall touch on further below. The Court’s modern approach to determining the duty question in cases of pure economic loss now bears little formal resemblance to that which is taken in the United Kingdom. New cases are determined flexibly by reference to a granular and variant set of ‘factors’ or ‘salient features’ emerging from particular sets of facts, rather than through broad overarching principles, hard and fast ‘exclusionary rules,’ or ‘bright lines’.2 The High Court has also been

1

Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) (‘Hedley Byrne’). The origins of this approach lie with Stephen J in Caltex Oil (Australia) Pty Ltd v The Dredge Willemstad (1976) 136 CLR 529 (HCA) 576–77, but are often most closely associated with the judgments of McHugh J in Crimmins v Stevedore Industry Financing Committee (1999) 200 CLR 1 (HCA) and Perre v Apand Pty Ltd (1999) 198 CLR 180 (HCA). The distinction between the reasoning processes in the UK and Australia is probably less pronounced than superficially appears to be the case since English courts express many of the same factors, just within a broader conceptual superstructure. 2

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reluctant to allow pure economic loss cases to be siloed into distinct, isolated categories and this has recently led judges to connect well-established principles of negligent misstatement law to other fields. This is often done, we shall see, through the increasingly pervasive concept of ‘vulnerability’, which is thought to straddle the categories and introduce generality into courts’ consideration of the law’s more discrete developments. Most significantly of all for our understanding of the misstatement field in this jurisdiction, Australia has long had its own powerful set of statutory remedies for misleading and deceptive conduct.3 This has undoubtedly truncated the development of negligence law. As Elise Bant and Jeannie Paterson pointed out in Chapter 7, the statutory remedies are now very much a plaintiff ’s first port of call. Indeed, so attractive are they to litigants that negligent misstatement litigation has become a backwater, rather than the busy mainstream it might otherwise have been. The repercussions of this are more serious than one might think and they serve to set the rather sombre tone of this chapter. The common law is currently in urgent need of clarification and rationalisation, but the prospects of its finer points being litigated to High Court level for resolution any time soon seem rather slim. None of this is to say that the law of negligent misstatement in Australia is entirely dead in the water, or unrecognisable to foreign eyes. There are still cases in which it offers hope when statutory causes of action do not;4 and in cases of the most basic configuration there is much commonality between the reasoning and results in Australian courts and other jurisdictions. However, as soon as one steps outside the relative security of the core case, one currently enters an uncertain wasteland. I refer to this uncertainty, perhaps a little unfairly, as the ‘legacy of Esanda,’5 since at least one Federal Court judge has accused the High Court of having failed to evince ‘any principle’ in that case and of having missed an important opportunity to clarify the law.6 The law as it exists today has some core certainties, but its edges are fissiparous and unsettled. It is also unclear, as we shall see, how the traditional ‘tests’ for the existence of a duty of care in misstatement cases now interact with the more broad-ranging ‘multifactoral’ approach mandated by the High Court for use in determining the duty of care issue in new cases. This chapter reviews the approach that Australian courts have taken to the duty of care question in negligent misstatement cases involving pure economic loss, focusing on two types of case, one of which is more difficult than the other. In

3 These were originally set out at Federal level in the Trade Practices Act 1974 (Cth) (s 54) and are now to be found in the Australian Consumer Law (Competition and Consumer Act 2010, schedule 2) (Cth) s 18 and associated State and Territory legislation. 4 The statutory remedies only target conduct ‘in trade or commerce’. This leaves negligence litigation most obviously attractive in cases involving public bodies, where statements are made in the exercise of the body’s statutory functions. 5 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (1997) 188 CLR 241 (HCA) (‘Esanda’). 6 Charben Haulage Pty Ltd v Environmental & Earth Sciences Pty Ltd [2004] FCA 403 (‘Charben’) [211] (Wilcox J).

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simpler cases of the ‘two-party’ typology considered in Section III, an advisor carelessly supplies information or opinion directly to the plaintiff (or his agent), usually (but not always) at the latter’s request. The principles here are reasonably well settled and only marginal adjustment is needed to bring the picture into rational focus. In the second type of case, relations between plaintiff and defendant are indirect. The defendant supplies information or advice to a third party (often under a contract), but the statement causes economic loss to the plaintiff either because it is passed on to the plaintiff and relied upon by him for his own financial purposes; or because it impacts indirectly on the plaintiff by affecting the profitability of transactions to which he is an actual or prospective party. These more problematic cases are considered in Section IV. Although it is reflected in the law of many jurisdictions, the distinction between ‘two-’ and ‘three-party’ cases is not watertight and is contestable in terms of principle. I adopt it here simply to make exposition a little easier. Indeed, I argue below that a single, common set of rules ought to be deployed in all cases of economic loss caused by a plaintiff ’s reliance on a negligent misstatement, whether they are of the two- or three-party type, even though the latter raise some complications (such as ‘indeterminacy’ and ‘remoteness’) that the former often do not. If there are additional problems in cases of the latter configuration stemming from residual concerns such as these, I will suggest that they are best met in other ways, not through the adoption of an artificially limited approach to the duty of care. I adumbrated the reason for this towards the end of Chapter 1—if it is the additional social effects of misstatement liabilities that are a concern in such instances, in particular, concerns regarding the undermining of information or insurance markets by ‘indeterminate’ liabilities—then it may be better for governments to step in to protect those markets legislatively, rather than to leave it to courts to try to deal with the problem.

II. Voluntarism and Policy in the High Court Before moving directly to the law, it is appropriate to make some prefatory remarks about the High Court’s general style of reasoning in cases of pure economic loss caused by misstatement. Given the fierce theoretical debate in Chapters 3, 4 and 10 of this book, it is informative to note that the Court has not generally understood the law in the voluntaristic terms advocated by Professors Stevens7 and Beever.8 7

R Stevens, Torts and Rights (Oxford, Oxford University Press, 2007) 33–35. Chapter 4. See also SR Perry, ‘Protected Interests and Undertakings in the Law of Negligence’ (1992) 42 University of Toronto Law Journal 247, 270–302 and (similarly, drawing on Perry) M Gergen, ‘Negligent Misrepresentation as Contract’ (2013) 101 California Law Review 953. Note, however, that although Perry uses voluntaristic language, his approach is quite distinct from that of Beever and Stevens in accepting that duties are imposed by courts, not voluntary in the sense of being created by the defendant: see Chapter 1, text at nn 52–58 and n 20 below. 8

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This is not to say that the language of ‘assumed responsibility’ or ‘relationship akin to contract’ is not sometimes used to justify an advisor’s duty of care,9 but the ideas have not been given the prominence that they currently enjoy in the United Kingdom.10 Moreover, when these concepts are deployed in Australia, they are generally understood to do little real work, but rather to operate as proxies or labels for more detailed factors, which, in combination, operate to create the relevant duty. This antipodean wariness of voluntarism was evident from the word ‘go’. Chief Justice Barwick, whose seminal judgment in Mutual Life and Citizens’ Assurance Co Ltd v Evatt11 is perhaps more frequently cited than any other, emphasised as long ago as 1968 the fact that duties of care in this field are imposed by the law in consequence of statements the defendant has made in the context of a particular relationship with the plaintiff and do not arise from any ‘consensual or unilateral assumption of duty’ on the defendant’s part.12 Although the duty stems from something a speaker willingly does (namely, speak) with someone with whom he is ‘bilaterally’ involved, it is not, he said, a duty ‘ex contractu’, or flowing from any ‘consensus or assumption of responsibility’ on his part.13 Nor did that language appeal to the High Court in Shaddock & Associates Pty Ltd v Parramatta City Council (No 2)14 in 1981, or play a major part in its reasoning in San Sebastian Pty Ltd v The Minister15 in 1986, although, as we shall, some reference was made in the joint majority judgment in the latter case to American case law, which emphasises the importance of establishing an ‘intention’ on the part of the speaker to induce reliance by the plaintiff. The cases of Esanda16 and Hill17 (both in 1997), and Kenny & Good Pty Ltd v MGICA (1992) Ltd18 (1999) are more equivocal, but on the most recent occasion that the High Court had the opportunity to engage in any detailed consideration of the duty issue in a misstatement case, in Tepko Pty Ltd v Water Board19 (2001), all members of the Court (including those in dissent) approved and applied Barwick CJ’s statement of the law.

9 See, eg, Mutual Life and Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 (HCA) (‘Evatt’) (Kitto J); Hawkins v Clayton (1988) 164 CLR 539 (HCA) 576 (Deane J), 545–46 (Mason CJ and Wilson J, dissenting); Columbia Coffee & Tea Pty Ltd v Churchill (1992) 29 NSWLR 141 172 (Rolfe J); Hill v Van Erp (1995–97) 188 CLR 159 (HCA) (‘Hill’) 185 (Dawson J); Esanda (n 5) 254 (Dawson J), 264 (Toohey and Gaudron JJ), 275 (McHugh J). 10 See Spring v Guardian Assurance plc [1995] 2 AC 296 (HL) (Lord Goff); Henderson v Merrett Syndicates Ltd [1995] 2 AC 145 (HL) (Lord Goff, Lords Keith, Nolan, Mustill and Browne-Wilkinson agreeing); White v Jones [1995] 2 AC 207 (HL) (‘White’) (Lords Goff, Browne-Wilkinson); Williams v Natural Life Health Foods Ltd [1998] 1 WLR 830 (HL) (Lord Steyn, Lords Goff, Hoffman, Clyde and Hutton agreeing); Customs & Excise Commissioners v Barclays Bank plc [2006] UKHL 28 (Lords Bingham, Hoffman, Rodger, Walker and Mance—all as part of a mixed approach). 11 Evatt (n 9). 12 ibid 568. 13 ibid 570. 14 Shaddock & Associates Pty Ltd v Parramatta City Council (No 2) (1983) 151 CLR 590 (HCA) (‘Shaddock’). 15 San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340 (HCA) (‘San Sebastian’). 16 Esanda (n 5). 17 Hill (n 9). This is actually not a case of misstatement as such. See n 59 and the text thereto. 18 Kenny & Good Pty Ltd v MGICA (1992) Ltd (1999) 199 CLR 413 (HCA). 19 Tepko Pty Ltd v Water Board [2001] HCA 19 (‘Tepko’).

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I suggest below that the language of intention, purpose, assumption of responsibility and ‘equivalence to contract’ is misleading and inappropriate as the foundation of duties of care in misstatement cases. It implies something meaningfully voluntary about liabilities for the consequences of substandard conduct that is basically untrue.20 I am fortified in this view not just by the detailed and revealing account of the way the concepts have been used provided by Andrew Robertson and Julia Wang in Chapter 3 of this book, but also by the fact that, although English Courts persist with the language of ‘assumed’ responsibility, they themselves now accept that it can be used to produce exactly the same results as other, nonvoluntaristic models;21 that assumptions often need to be ‘extended’ or ‘deemed’ (ie fabricated) in the interests of ‘practical justice’;22 that they denote no more than the existence of a close ‘nexus’ or ‘relationship’ between plaintiff and defendant on the facts;23 that their existence is a ‘legal inference’ affected by considerations of ‘fairness and policy’;24 that the concept is not a ‘test’ for duty, but rather a conclusory label;25 and that whether or not an ‘assumption of responsibility’ is present on the facts of a case is an objective matter that can only be determined by looking at the legal precedents, and having regard to a much more detailed, lower-level set of factors.26 All of this suggests that Barwick’s CJ’s scepticism of voluntarism

20 The language of voluntariness is notoriously slippery. For a full exposition, see K Barker, ‘Unreliable Assumptions in the Modern Law of Negligence (1993) 109 LQR 461. Cf Perry (n 8) 270–302. Note that Perry himself accepts (at 286) that duties arising from ‘undertakings’ are not voluntary because they do not involve the exercise of a normative power. I have also never denied that a genuine promise of care giving rise to detrimental reliance provides a good justification for liability (at 465) (although my preference would be for it to take effect within contract). The point is that the tensile strength of such a model of tort liability is exceeded by the weight of those cases in which a duty of care has actually been imposed. See also K Barker, ‘Wielding Occam’s Razor: Pruning Strategies for Economic Loss’ (2006) 26 OJLS 289 (where the points are further pressed). 21 Bank of Credit and Commerce International (Overseas) Ltd (In Liquidation) v Price Waterhouse (No 2) [1998] PNLR 564 (CA) (‘BCCI’) [586] (Sir Brian Neill, Brooke LJ and Nourse LJ agreeing); Dean v Allin & Watts [2001] 2 Lloyds Rep 249 (CA) [33] (Lightman J); Merrett v Babb (2001) QB 1174 (CA) 1193 (May LJ) (the Caparo test and ‘assumption of responsibility’ test ‘merge’); Kyrris v Oldham [2003] EWCA Civ 1506 [1141] (Jonathan Parker JL, Dyson and Thorpe LJJ agreeing); Customs (n 10) [5], [8] (Lord Bingham), [83] (Lord Mance). Whether this is true depends on what one means by ‘assumption of responsibility’. 22 White (n 10) 268 (Lord Goff); Williams (n 10) 834, 837 (Lord Steyn, Lords Goff, Hoffmann, Clyde and Hutton agreeing) (‘coherence must sometimes yield to practical justice’); Carr-Glynn v Frearsons (A Firm) (1999) Ch 326 (CA) 334–35 (Chadwick LJ), 339 (Thorpe LJ); Gorham v British Telecommunications plc [2000] 1 WLR 2129 (CA) 2140–1 (Pill LJ); Dean (n 21) 261 (Lightman J). There is some recent shrinking from this approach and an attempt to confine use of the concept to cases of genuine implied agreement, but the latter model is also often misleading, and too narrow to support liability in the cases in which justice demands it. 23 Dean (n 21) 264 (Sedley LJ); Phelps v Hillingdon London Borough Council [2003] 3 WLR 776 (HL) 791 (Lord Slynn); Customs (n 10) [35] (Lord Hoffman) (‘the purpose of the inquiry is to establish whether there was, in relation to the loss in question, the necessary relationship (or “proximity”) between the parties’). 24 Customs (n 10) [35]–[36] (Lord Hoffman). 25 Caparo Industries plc v Dickman [1990] 2 AC 605 (HL) 637F (Lord Oliver); Henderson (n 10) 929G, 181C (Lord Goff); Riyad Bank & Ors v Ahli United Bank (UK) plc [2006] EWCA Civ 780 [128] (Buxton LJ). 26 BCCI (n 21) 587 (Sir Brian McNeill); Precis Plc v William M Mercer Ltd [2005] EWCA Civ 114 [24] (Arden JL, Kennedy and Laws LJJ agreeing); Customs (n 10) [83] (Lord Mance), Clerk & Lindsell on Torts, 20th edn (London, Sweet & Maxwell, 2010) [8-101]–[8-120].

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in Evatt was justified and that ‘will theories’ of negligence law, whether framed in terms of a defendant’s subjective or objective intentions, seduce the intelligence in ways that blind it to the subtle complexities of the decisions that have to be made. They perpetuate in the twenty-first century an ‘implied contract fallacy’ of tort law, giving vent to the same psychological instinct to attribute controversial economic duties to the ‘will of the parties’ as bedevilled the law of restitution in the early part of the twentieth century, when that subject was forced to inhabit the shadows of ‘quasi-contract.’ The Second and draft Third US Restatements27 significantly make no reference to assumptions of responsibility and frame the legal test for duty in misstatement cases pragmatically, with an eye on the defendant’s fault, the relationship between the parties, and operative policy concerns. This more ‘realistic’ approach is shared by Australian judges. The concerns they express about overextending the bounds of liability for faulty advice are familiar ones, akin to those recently identified in the Third Restatement Draft. They include concerns about: (1) unduly inhibiting personal freedom of expression and social interaction; (2) contradicting ways in which economic risk has been allocated contractually or producing incoherence with the purposes of regulatory schemes under which advice is often given; (3) swamping courts with evidentially complex cases and unmanageable workloads that may operate to the detriment of other litigants; (4) imposing liabilities on defendants that are disproportionate to their fault; (5) imposing liabilities that are so large as to distort the pricing, availability and quality of service provision in information markets generally; (6) imposing liabilities on advisors that are so uncertain (‘indeterminate’) that they are likely to be uninsurable; (7) imposing liabilities for ‘remote’ harms that result from decisions that financial investors voluntarily make for themselves; (8) imposing liability on advisors who have played only a secondary role in bringing about a loss, relative to other wrongdoers and (9) imposing liability for losses against which plaintiffs might reasonably have taken their own protective measures, for example by obtaining independent advice, taking steps to verify the information a defendant has provided, diversifying their investments, or (where they are using information to advance finance) by insuring the debts they are owed.28 Some of these concerns stem from the readily transmissible nature of inaccurate information and its capacity to cause downstream ‘ripple effects’, but not all of them do. For example, concerns 1, 2 and 4 may clearly be present even in

27 Restatement (Second) of Torts §552 (‘Second Restatement’); Restatement (Third) of Torts: Liability for Economic Harm (Tent Draft 1, 2012) (‘Third Restatement Draft’) §5. 28 For a representative discussion of the various concerns set out above, see Esanda (n 5) 282–89 (McHugh J), 303–04 (Gummow J). On the economics of misstatement liability, see W Bishop, ‘Negligent Misrepresentation through Economists’ Eyes’ (1980) 96 LQR 360. For a detailed examination of the concerns and the way in which they play into courts’ reasoning on the duty of care issue, see K Barker, ‘Economic Loss and the Duty of Care: A Study in the Exercise of Legal Justification’ in C Rickett (ed), Justifying Private Law Remedies (Oxford, Hart Publishing, 2008) 173; J Stapleton, ‘Duty of Care and Economic Loss: A Wider Agenda’ (1991) 107 LQR 249.

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cases in which advice has been supplied directly to a single individual. Some of the concerns (1, 5) are arguably unique to cases involving negligent words, but the majority also arise in other cases involving pure economic loss and hence resurface in other spheres. Some are more likely to arise in ‘three-party’ cases than in ‘two-party’ cases. This is most obviously so with the concerns about huge (5) or indeterminate (6) liability, which may in turn explain why Australian courts have sometimes taken a stricter approach in such cases: the remoter the plaintiff ’s harm from the defendant’s carelessness and the more the information supplied by a defendant has been ‘passed on’, the more difficult it will be for an advisor to predict the scope of his potential liabilities, set pricing, or arrange the required levels of insurance to cover risk. Where information has been passed on by its immediate recipient, it is also more likely (though certainly not inevitable) that the plaintiff using it will be one of a large and/or uncertain class of persons; and the greater the spread and volume of liability is likely to be. It is possible to contest the legitimacy of several of these concerns, but it is not possible to deny that they exist. According to the pragmatic approach that dominates Australian law, the rules regarding duty are a direct reflection of the above concerns. They are designed to achieve a balance between norms of responsibility for harm caused by faulty conduct on the one hand, and a variety of other libertarian, economic and systemic considerations, on the other. On this view, there are no straightforward answers to the question when a duty will be owed, but the unattainability of perfect coherence is not regarded as a valid reason to avoid creating rules that represent an attainable compromise.

III. ‘Two-Party’ Cases: The ‘Barwick Test’ D

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The basic approach to the duty question in Australian law in cases in which information, opinion or advice is supplied directly by the defendant to the plaintiff or one of the plaintiff ’s agents, is set out the judgment of Chief Justice Barwick in the Evatt case.29 Evatt involved a demurrer, so that it did not technically decide the duty issue, but the High Court nonetheless held by a majority of 3:2 that an insurance company might owe a duty of care to a potential investor (also one of its own shareholders) when supplying financial information about an associated company at the investor’s request.30 The decision in Evatt was subsequently overruled by the Privy Council,31 but that reversal has since been thought a mistake and Barwick

29

Evatt (n 9). Barwick CJ thought this would depend on the identity and capacity of the company officers that had supplied the information—a matter for trial: ibid 259. 31 [1971] AC 793 (PC). 30

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CJ’s reasoning has been affirmed in the High Court on several occasions.32 In his speech, Barwick CJ said that he had derived ‘assistance’ from their Lordships in Hedley Byrne, but he was nonetheless setting out his own, distinct approach for Australia. In addition to the foreseeability of harm, his Honour referred to the need for a ‘special relationship’ between the parties. In the following extract, he details the ‘essential elements’ of that relationship: First of all, I think the circumstances must be such as to have caused the speaker or be calculated to cause a reasonable person in the position of the speaker to realize that he is being trusted by the recipient of the information or advice to give information which the recipient believes the speaker to possess or to which the recipient believes the speaker to have access or to give advice, about a matter upon or in respect of which the recipient believes the speaker to possess a capacity or opportunity for judgment, in either case the subject matter of the information or advice being of a serious or business nature. It seems to me that it is this element of trust which the one has of the other which is at the heart of the relevant relationship… [Secondly] … the speaker must realize or the circumstances be such that he ought to have realized that the recipient intends to act upon the information or advice in respect of his property or of himself in connection with some matter of business or serious consequence. Of course, utterances in the course of social intercourse with no thought of legal consequence could not satisfy such a condition. [Thirdly] … it seems to me that the circumstances must be such that it is reasonable in all the circumstances for the recipient to seek, or to accept, and to rely upon the utterance of the speaker.33

It has subsequently been suggested that these three requirements of trust, actual (or constructive) knowledge and reasonable reliance are reducible to two— knowledge and reasonable reliance. This is on the basis that the essence of the relationship of ‘trust’ to which Barwick CJ was referring in the first paragraph above is in fact the reliance that the advisee places on an advisor.34 Trust (or reliance) is the mechanism via which a defendant’s words come to have an effect upon the world in general and the plaintiff ’s financial interests in particular, which explains the

32 See Shaddock (n 14) 250–51 (Mason J, Aickin J agreeing), 255–56 (Murphy J); San Sebastian (n 15) 356–57 (Gibbs CJ, Mason J, Wilson J, Dawson J), 371–72 (Brennan J); Esanda (n 5) 249–50, 252 (Brennan CJ), 255 (Dawson J), 264 (Toohey and Gaudron JJ); Tepko (n 19) 16–17 (Gleeson CJ, Gummow and Hayne JJ), 23 (Gaudron J) 46 (Callinnan and Kirby JJ, McHugh J agreeing). See also, more recently City of Botany Bay v Jazambas [2001] NSWCA 94; BMW Australia Finance Ltd v Miller Insurance Broking Pty Ltd [2009] VSCA 117 [180] (Robson AJA) (reversed on factual grounds: (2010) 241 CLR 357); Kestrel Holdings Pty Ltd v APF Properties Pty Ltd [2009] FCAFC 144 [97] (Gray, Mansfield and Tracey JJ); Mbakwe v Sarkis [2009] NSWCA 330 [25]–[27] (Handley AJA); Wayne Garry Meredith v Commonwealth of Australia (No 2) [2013] ACTSC 221 [385] (Refshauge J); Polon v Dorian [2014] NSWSC 571 [645] (Hall J); ABN Amro Bank NV v Bathurst Regional Council [2014] FCAFC 65 (‘Amro’) [573] (Jacobson, Gilmour and Gordon JJ). 33 Evatt (n 9) 571. 34 Esanda (n 5) 256 (Dawson J) (reliance is the way in which courts tend ‘nowadays’ to talk about the sort of ‘trust’ that Barwick CJ was referring to). The shift to a two-stage interpretation of Barwick CJ’s criteria is evident in recent cases such as Kestrel (n 32) [94] and Amro (n 32) [573].

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concept’s role in misstatement cases. Words do no harm in and of themselves and must influence human behaviour to have causative effect. They are not sticks and stones. In all two-party cases, the plaintiff ’s reliance therefore provides the causal pathway from the defendant’s negligent words to the loss that the plaintiff suffers.

A. Reasonable Reliance Such reliance usually results from an unequal position between the parties, but the defendant need not be a professional advisor, nor need he be holding himself out as possessing any special skill35—his possession of a monopoly of knowledge or factual information on a matter of interest to the plaintiff is enough. Whether reliance by the plaintiff is reasonable turns on a variety of factors, including the nature of the subject matter, the occasion of the interchange between the parties, their identity and relative positions as regards knowledge, and their capacity for the exercise of judgment.36 It may also depend on whether or not the defendant has issued a disclaimer or responsibility alongside the information or advice,37 or has, to the plaintiff ’s knowledge, made deliberate efforts to restrict the purposes for which the information is to be used, or the audience to which it is to be distributed, so as effectively to provide a ‘warning’ to the plaintiff not to use it. Whether or not the plaintiff might reasonably have protected himself against the loss (whether he is ‘vulnerable’ in the modern language of the High Court) is also relevant. Indeed, the language of ‘vulnerability’ and reasonable reliance are now effectively synonyms in Australia in the misstatement context. From one point of view, if the function of reliance is causal only, the concept should form no part of the test for duty at all. From the same aspect, the reasonableness of a plaintiff ’s reliance in making use of information or advice goes to the question whether his own decision to use the information as a basis for investment constituted a novus actus interveniens, rendering him the true, legal cause of his own subsequent loss;38 or to the question of whether the plaintiff has been contributorily negligent in respect of that loss and ought to have his damages reduced accordingly. It is interesting to note in this regard that the Third Restatement Draft now omits any formal requirement that a plaintiff ’s reliance be ‘justifiable’ from the duty formula and simply applies normal comparative (contributory) negligence principles where a plaintiff has acted unreasonably in relying. This is a

35 Evatt (n 9) 574; Shaddock (n 14) (but note that Gibbs CJ at 235 did not think that it was technically necessary to decide the issue on the facts). 36 Evatt (n 9) 571. 37 ibid 570. First National Commercial Bank Plc v Loxleys [1997] PNLR (CA) 211, 215 (Nourse LJ). 38 Unreasonable plaintiff actions may sever the causal chain of responsibility. This may in turn explain why it has been said that the reasonableness of a plaintiff ’s reliance is not critical where the defendant intends to induce it: San Sebastian (n 15) 358 (Gibbs CJ, Mason J, Wilson J, Dawson J). In such cases, the defendant’s conduct remains the primary legal cause of the plaintiff ’s loss—his carelessness does not sever the causal chain.

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deliberate and important change from the approach in the Second Restatement,39 which makes it more likely that those relying unreasonably will receive at least some compensation. In Australian law, however, as in the United Kingdom, both reliance and the need for it to be ‘reasonable’ are currently firmly embedded in the duty rules in cases of this type. Personally, I regard this as illogical and would reassign questions of reasonable reliance to the causation, remoteness of damage and defence inquiries, rather than dealing with them at the duty of care stage, but matters of responsibility are notoriously migratory across the various conceptual boundaries of negligence law and it is sometimes thought that discussing such matters at the duty stage makes the underlying questions of policy clearer. To the extent that judgements about the ‘reasonableness’ of reliance are distributive judgements about the appropriate onus of precaution as between plaintiff and defendant that require open discussion and more considered, general debate, there is certainly some justification for this view. One of the functions of the ‘duty’ inquiry is thought to be to provide generalised conclusions about the scope of defendant responsibilities, which constitute clearer signposts or ‘markers’ about where responsibilities for protection lie. There is some irony in this, of course, given the very individualised way in which duty questions are nowadays determined in new cases, but the aim is understandable enough. Which approach is taken is not without significance in terms of the amount of compensation a plaintiff can receive and reflects one’s underlying views as to the importance or otherwise of the plaintiff ’s economic interests.

B. Actual or Constructive Knowledge When it comes to knowledge, it is clear from Barwick CJ’s judgment that his Honour did not consider it necessary for the defendant to know of the particular transaction in which the plaintiff subsequently relies, but thought it enough that he knows that it will be used ‘in connection with some matter of business or serious consequence’.40 This formulation is similar to (if slightly more generous than) the stipulation in the Third Restatement Draft that the defendant must know the information will be used in a ‘substantially similar transaction’ to that in which it is used in fact.41 In the Tepko case, the High Court was divided on the degree of specificity attaching to this aspect of the knowledge requirement, which

39 See the Reporter’s note to §5 in the Third Restatement Draft. Note, however that the new §5 does contain a requirement that the defendant be acting in the course of his business or profession, or in a transaction in which he has a pecuniary interest; and that one of the purposes of this requirement is said to be to confine liability to cases in which information is offered in a sufficiently serious spirit to make the plaintiff ’s reliance reasonable: comment (c) to §5. 40 Evatt (n 9) 574. Note, however, that this statement was made in respect of cases in which a request for the information had been made, so that the defendant is likely to know of the type of transaction contemplated by the plaintiff. 41 §5(2)(b).

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is odd, given that all members of the Court purported to be applying Barwick CJ’s approach. The majority refused to allow a property developer’s claim against a Water Board for inaccurate statements of likely water connection costs the latter had provided, partly on the basis that the Board had been ‘kept in the dark’ about the particular, crucial financing transaction in which the information was being used by the developer.42 The minority considered this approach too strict, saying that it should be enough that the defendant knew the information was required for a ‘serious [financial] purpose’.43 This is closer to Barwick CJ’s original proposition and perhaps also to the American approach, although it is unclear whether the latter would have yielded a different outcome on the facts of Tepko itself, because there the majority also cited a number of reasons why the developer’s reliance on the figures provided was unreasonable.44 The minority approach to knowledge, or that suggested in the Third Restatement Draft, is probably to be preferred. As regards the defendant’s knowledge of the person using the advice or information, Barwick CJ considered it unnecessary for the defendant to know that the information will be relied on by the plaintiff himself, provided the latter is a member of an identifiable class on whose behalf the information is sought.45 This approach again finds support in the Third Restatement Draft, according to which it is sufficient if the plaintiff is one of a ‘limited group’ of persons to whom the defendant knows the information will be supplied.46 The criterion makes sense if it is designed to accommodate concerns about indeterminacy or crushing liability, but its application to real world facts is often very difficult.

C. Unrequested Advice It is possible for the two limbs of the Barwick test to be satisfied even when the information the defendant has provided has been volunteered, not requested, although the facts are likely to be exceptional.47 The functions played by a request lie in alerting a defendant to the prospect of another’s reliance (ie in proving that he knows it is likely to occur); in identifying to the defendant the person or persons intending to use the information (so as to minimise concerns about indeterminate liability); and in helping to prove that the plaintiff has in fact relied48 on the information when making his investment (ie in proving causation). There is no reason in principle, however, why a request should be necessary for a plaintiff to make out any of these elements. In the San Sebastian case, where a council had volunteered 42

Tepko (n 19) [48]. ibid [146]. 44 These included the fact that the developer had its own independent advice, the information had been provided reluctantly and after a series of flat refusals, and took the form of an upper estimate of costs. 45 Evatt (n 9) 570. 46 §5(2)(a). 47 Evatt (n 9) 571–72 (Barwick CJ); San Sebastian (n 15) 357 (Gibbs CJ, Mason J, Wilson J, Dawson J). 48 San Sebastian (n 15) 357–58 (Gibbs CJ, Mason J, Wilson J, Dawson J). 43

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public information about its plans for the development of an area of Sydney that was then detrimentally relied on by a developer, the joint majority suggested in a well-known obiter passage that a duty might arise in respect of even volunteered information if (1) the defendant has special skill, (2) he warrants the information’s correctness, (3) he invites the plaintiff to rely on it, (4) he intends the plaintiff to rely on it, or (5) he has a pecuniary interest in the plaintiff so relying.49 It is not wholly clear whether these criteria were intended to constitute a distinct and stricter set of duty rules for cases involving unrequested information; or whether it was thought that they would serve as alternative ways of proving the essential elements of Barwick CJ’s approach. Each criterion could certainly assist in proving that a defendant knew (or ought to have known) that a plaintiff would be likely to rely on his advice and in proving that reliance to be reasonable. This is probably how they are best understood, since the passage in which they are set out follows on immediately from the Court’s discussion of Barwick CJ’s approach.50 There is nonetheless some doubt, since some of these criteria have been selectively deployed in the more problematic three-party cases to which we shall come in Section IV, where there are signs of a more restrictive approach to the duty question. Certainly, some of the criteria—such as the requirement that a defendant must intend that the plaintiff will rely, or must ‘warrant the correctness’ of his advice—are stricter than the requirements of knowledge under Barwick CJ’s original formulation. If they were to be understood as distinct requirements applying in a separate ‘subcategory’ of case involving unrequested advice, they would therefore potentially operate restrictively (and without any good reason) in cases of the more basic, two-party type. The best approach, I suggest, is to regard them as being evidentially relevant to establishing the elements of the Barwick approach, not substantive requirements in their own right.

D. Advice to the World X

D

P

Y

A feature of the San Sebastian case that might explain the joint majority’s reference to the more restrictive criteria just outlined was the fact that the information in question was not simply volunteered, but volunteered directly ‘to the world’, by 49 ibid 357. The claim in fact failed on the straightforward bases that no firm representation had been made and/or it was unreasonable to rely on council plans that are subject to change. 50 This how Dawson J (correctly, I think) understands the relevant passage in Esanda (n 5) 256–57.

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being made publicly available. This is likely to be a rare case in practice—the most obvious examples being public authority or other governmental announcements, statements made by broadcasters, and inaccurate information published on websites (of which there is surely a great deal). In such cases, plaintiffs clearly stand in a remoter relation to the advisor. Even if it can be shown that a firm representation has been made, it will be rare that reliance upon it will be reasonable, or that the defendant will be seen as the main legal cause of a plaintiff ’s loss, if the latter chooses to use the information without making his own investigations about its reliability. There are also obvious concerns in cases like San Sebastian about indeterminate or large liabilities, akin to those that prevail in many three-party cases. Whether or not more restrictive criteria should apply to the duty issue in consequence depends entirely on whether that policy concern can be accommodated through application of the more basic Barwick approach. I suggest that the knowledge requirements under that approach are sufficient for this purpose. There is support for that view in the fact that his approach has garnered the support of some judges even in the more controversial type of three-party case, which we consider in the next section, where similar concerns about indeterminate liabilities are regularly voiced. With the exception of some minor uncertainties in cases involving the provision of information or advice to the world, there is therefore a reasonable level of level of certainty in the legal criteria governing the duty question in ‘direct’ two-party cases in Australia. The (once three-stage, now two-stage) ‘Barwick test’ prevails. Once we leave the basic, two-party case, however, we sadly step out on to very uncertain ground.

IV. ‘Three Party’ Cases—Into the Wasteland D

X

D

P reliance Case type 1

P

X

Case type 2

A. More Case Types ‘Three party’ cases themselves fall into two, different configurations. In the first (case type 1 above), the defendant provides information to a third party (usually under a contract) and the information is then passed on indirectly to the plaintiff, who relies on it. This scenario is typified by many auditor and (some) valuer

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cases such as Esanda, Ultramares Corporation v Touche,51 Caparo Industries plc v Dickman,52 Hercules Management v Ernst & Young53 and Smith v Eric Bush.54 The third party is not acting in such instances as the plaintiff ’s agent in the way that Hedley’s own bank was in Hedley Byrne itself. In the second type of case, the provision of false information to the third party impacts detrimentally upon the plaintiff ’s economic interests, without the plaintiff himself ever actually using or relying on the information. It is the third party’s reliance on the information (or the reliance of other market actors) that provides the causal pathway between the defendant’s carelessness and the plaintiff ’s loss. This type of case is typified by solicitor-beneficiary cases such as White,55 Hill56 and Ross v Caunters;57 and by cases involving negative job references supplied by a defendant to a plaintiff ’s prospective employer, such as Spring v Guardian Assurance,58 although there are other examples. White, Hill and Ross are more usually categorised as cases of negligent service provision, not ‘negligent misstatement’, because in each of them the solicitor’s error lay not in making any careless statement, but in omitting to act so as to secure the wishes of his client to confer economic benefit on the plaintiff.59 I have discussed such cases elsewhere.60 It might be possible to dispose of them justly by expanding the boundaries of the law of contract, although changing privity rules in the way that is required would not be as straightforward as is often assumed.61 It is the clear failure of the solicitor

51

Ultramares Corporation v Touche (1931) 255 NY 170, 174 NE 441 (NY). Caparo (n 25). 53 Hercules Management v Ernst & Young [1997] 2 SCR 165 (SCC). 54 Smith v Eric Bush [1990] 1 AC 831 (HL). 55 White (n 10). 56 Hill (n 9). 57 Ross v Caunters [1980] Ch 297 (Ch). 58 Spring (n 10). For other examples of cases of this pattern, see Sullivan v Moody (2001) 207 CLR 562 (HCA) (negligent statement by police to insurance company regarding plaintiff ’s blood alcohol level during road accident impacting on plaintiff ’s mental health); Dale v Veda Advantage Information Services & Solutions Ltd [2009] FCA 305 (credit agency—negligent representation of P’s credit standing to third party); Walker v Veda Advantage Information Services and Anor [2011] QSC 316 (similar to Dale); Chandra & Anor v Perpetual Trustees Victoria Ltd and Ors [2007] NSWSC 694 (solicitor liable to Ps for unwittingly helping fraudster defraud them); Glanzer v Shepherd 135 NE 275, 233 NY 236 (1922) (NYCA) (public weigher engaged by vendor of goods owed duty of care to P purchaser to state weight of goods correctly, when P bound to pay for weight determined by D); Kestrel (n 32) (D valuer engaged by third party owed duty to P where price paid by P partly determined by D’s valuation—note, however, that the third party was here itself engaged by P, so that it is almost as if the third party was acting as P’s agent). For some other examples in American law, see M Gergen, ‘The Ambit of Liability for Pure Economic Loss’ (2006) 48 Arizona Law Review 749, 760–61, 770–71. 59 The categories of negligent service provision and misstatement tend to intersect and blur when the service provided is advisory. It has also been suggested that many cases of service provision like Hill can give rise to implied representations: P Cane, ‘The Metes and Bounds of Hedley Byrne’ (1981) Australian Law Journal 862, 862. But not all advisory failings involve positive misrepresentation. 60 See K Barker, ‘Are We Up to Expectations? Solicitors, Beneficiaries and the Tort/Contract Divide’ (1994) 14 OJLS 137. 61 ibid 144–45 (pointing out that the changes under the Contracts (Rights of Third Parties) Act 1999 would make no difference to the plaintiff in disappointed beneficiary cases). 52

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to perform his contract with his client in cases of this sort that attracts some commentators and judges to the idea that the solicitor’s duty to the plaintiff is based on a relationship ‘akin to contract’.62 The High Court has not directly considered a negligent reference case such as Spring and seems reluctant, in any event, to allow such claims to undermine defences in the law of defamation,63 which leaves the job reference category empty and the applicable principles under Australian law yet to be determined. There is too little space to consider the proper approach to the duty question in such cases here and I confine myself to the obvious observation that the concept of a special relationship of ‘reasonable reliance’ will most likely be a redundant conceptual tool in such instances, because the plaintiff himself or herself never relies on the advice given.64 Below, I focus instead on the first, more familiar type of three-party case, in which a plaintiff himself makes use of information supplied by the defendant that has been obtained indirectly via a third party.

B. The Wasteland of Esanda Esanda was a typical case of this sort. It involved a careless audit report relating to the financial affairs of a particular company that was detrimentally relied on by the company’s financier. The confusion surrounding its contribution to the duty debate stems from several factors. First, the plaintiff ’s pleadings were struck out on a straightforward basis that did not require the court to address the finer points of the duty question. This renders virtually all of the court’s reasoning on that issue obiter. Secondly, the five judgments in the case vary significantly in form and detail, although there are undoubtedly some commonalities, which I draw out below. Thirdly, the case was decided at a time when ‘proximity’ reasoning was still good currency in Australian law, which means that one must now bypass that language in order to extract any intellectual sustenance from the case. Finally, the judgments were all given several years before the Tepko case, in which the High Court affirmed the Barwick approach. It is unclear to what extent the principles articulated in Esanda in 1997 have been superseded by the more recent statements of the law in the latter case (in 2001). Three members of the Court (Gummow, Gaudron and McHugh JJ) sat in both cases.

62 The same language has been used in other cases of a similar three-party fact pattern: Interchase Corporation Ltd (in liq) v Grosvenor Hill (Qld) Pty Lty No 3 [2001] QCA 191 [26], [30] (but see also the language of ‘direct effect’ and ‘linking conduct’); Kenny (n 18) 434 (McHugh J), 446 (Gummow J). See also the decision of the trial court in Glanzer (n 58) (but note that this was rejected by Cardozo J in the NYCA at 277 as ‘artificial’). 63 Sullivan (n 58) [54]. See also Cornwall v Rowan (2004) 90 SASR 269 (SAFC). 64 The only way of avoiding this conclusion is to reduce the idea of reliance to the weak and circular notion of a ‘reasonable expectation that the plaintiff will protect’ the defendant (‘general’ reliance as it is sometimes called), which is entirely unhelpful because it simply restates the question whether the defendant ought to protect.

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Despite Tepko, Esanda is still regularly cited in cases of the three-party configuration. This may be because Tepko is itself understood as a case of the more straightforward two-party type—the plaintiff in that case had been in direct contact with the defendant and had previously requested the information supplied in a way that the plaintiff in Esanda had not. There is some controversy surrounding this issue.65 In any event, the fact that courts continue to refer to the judgments in Esanda even after Tepko, implies that they see the former case as still having useful things to say about the relevant legal principles in cases of the remoter, three-party pattern. How, if at all, do the principles in Esanda differ from those postulated by Barwick CJ in Evatt? If one looks beyond the language of proximity and asks what it was that the judges thought might make a relationship proximate, the approaches of Brennan CJ, Dawson J, and Toohey and Gaudron JJ are actually all pretty close to Barwick CJ’s own. Dawson J thought that a proximate relationship would be triggered by a defendant’s actual or constructive knowledge of a plaintiff ’s reasonable reliance on information provided. Indeed, he saw his reasonable reliance principle as simply a more modern way of expressing Barwick CJ’s requirement of ‘trust’. He rationalised the additional principles stated by the majority judgment in San Sebastian66 above as simply assisting in the application of that approach in cases in which the plaintiff had not himself requested the information67—a circumstance that Barwick CJ himself had not addressed in any real detail. The joint judgment of Toohey and Gaudron JJ was similar in general import. Stripping away the language of assumption of responsibility (about which their Honours were themselves sceptical), they concluded that the essential elements of a special relationship were knowledge and reasonable reliance.68 Brennan CJ drew on both Barwick CJ’s approach and the speeches of members of the House of Lords in Caparo. His formulation is close to that of Lord Bridge in that case. He said: In every case, it is necessary for the plaintiff to allege and prove that the defendant knew or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the

65 The information was furnished in a report to the Minister, who then passed its contents in the form of a letter to two other Members of Parliament. A copy of one of the letters was then passed to a consultant engaged by the plaintiff. The plaintiff had originally made a direct request to the defendant for the information it contained. Although it is clear that the information had been requested by the plaintiff, Gaudron J denied that, on the occasion it was given, it was provided by way of response to a request made on the plaintiff ’s behalf and treated it as if it had been volunteered at [79]–[80]. The fine-grained nature of these factual distinctions itself suggests that there is little traction in a firm twoparty/three-party distinction. 66 See Section IIIC above. 67 Esanda (n 5) 256–57. 68 ibid 265. It should be noted that their Honours understood reliance in a broader sense than articulated by Barwick CJ in Evatt (a ‘reasonable expectation’ on the part of the plaintiff ‘that due care will be exercised’ by the defendant—see 264) that has since been criticised by the High Court and is generally unhelpful. See Pyrenees Shire Council v Day (1998) 192 CLR 330 (HCA) 344 (Brennan J) 387–88 (Gummow J) 411 (Kirby J) and n 64 above. Note, however, that at least one member of the NSWCA has recently refused to totally banish the idea and considers it one factor for consideration: Makawe Pty Ltd v Randwick City Council [2009] NSWCA 412 [26] (Hodgson JA).

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information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound.69

Emphasis here is placed on a high degree of probability that the information will be used and will cause loss; on the purpose for which the information is provided; and on the defendant’s knowledge that the advice will be used in a transaction of the same kind as the defendant contemplated. With the exception of the emphasis on a higher probability of harm, the approach is again close to Barwick CJ’s and we may infer that Brennan CJ intended his words to be his own iteration of those principles. This conclusion follows from the fact that earlier, in San Sebastian, he had expressed similar ideas and there expressly identified them as his own version of the Barwick test, adapted to the facts.70 McHugh J’s judgment stood apart from the others and drew directly from the majority judgment in San Sebastian. It concluded: [T]he position in Australia to date with respect to liability for pure economic loss caused by negligent misstatement is that, absent a statement to a particular person in response to a particular request for information or advice or an assumption of responsibility to the plaintiff for that statement, it will be difficult to establish the requisite duty of care unless there is an intention to induce the recipient of the information or advice, or a class to which the recipient belongs, to act or refrain from acting on it. Mere knowledge by a defendant that the information or advice will be communicated to the plaintiff is not enough.71

This section has given rise to considerable uncertainty regarding the importance of a defendant’s intention in cases of the remoter three-party configuration. On the one hand, McHugh J clearly approved of the decision in R Lowe Lippmann Figdor and Franck v AGC (Advances) Ltd72 in which the Victorian Court of Appeal had interpreted San Sebastian to emphasise the significance of the defendant’s intention in cases of this type. At the same time, however, he suggested that the fact that a defendant does not intend to induce the plaintiff to rely is ‘not necessarily fatal’ to a claim.73 Gummow J disposed of the case on the very limited basis that the pleadings on their face were insufficient to disclose a case for a duty of care. He thought it inappropriate to indicate what might ‘remedy the deficiency’, given the general lack of consensus about the duty question.74 He did, however, indicate that neither an assumption of responsibility, nor intention to induce reliance on the part of a defendant were necessary for a claim to succeed.75 Indeed, he voiced general

69 70 71 72 73 74 75

ibid 252 (emphasis added). San Sebastian (n 15) 371–72. Esanda (n 5) 275 (emphasis added). See also 281. R Lowe Lippmann Figdor and Franck v AGC (Advances) Ltd [1992] 2 VR 671 (VSCA). Esanda (n 5) 275. ibid 302, 310. ibid 310.

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scepticism as to whether the former concept could act as an adequate ‘determinant’ of the existence of a duty of care.76

C. Lower Court Confusion Lower courts have been unsure how to interpret or apply the various judgments in Esanda. One can sympathise with their dilemma. The extent of the confusion is illustrated in a Federal Court decision of 2004, Charben Haulage Pty Ltd v Environmental & Earth Sciences Pty Ltd.77 The plaintiff in that case was a redeveloper who purchased land in reliance on an environmental report that had been prepared by the defendant company for the land’s vendor. The report was prepared under contract with the vendor, but as Wilcox J found, the defendant knew full well that the vendor was selling the site and that the reason the vendor wanted the report was in order to persuade potential purchasers that it was suitable for domestic redevelopment. He also found that the defendant knew, or ought to have known, that the report would be shown to potential purchasers in order to get them to make the purchase.78 He nonetheless rejected the negligence claim. His reasoning was brief and, with respect, obscure. Importantly, he accepted that the claim might well succeed under Brennan CJ’s approach, but nonetheless rejected it on the basis that it was not clear that ‘the other members of the court’ in Esanda would have imposed a duty of care on the facts, because the plaintiff had not requested the report and the defendant had not produced it ‘with the intention of causing [the plaintiff] to rely upon it’.79 An obvious difficulty with this thinking appears to be that, on the analysis presented above, none of the approaches of Dawson, Toohey and Gaudron JJ would have ruled out the existence of a duty of care on the facts—indeed, the approaches of these judges seem at least as generous as that of Brennan CJ and to have been broadly in line with the Barwick approach that prevails in the basic two-party case. Since Gummow J did not commit to any firm view, the only member of the Court in Esanda who might have objected strongly to the existence of a duty on the facts therefore seems to be McHugh J, who might have insisted on the facts that the defendant must have intended to induce the plaintiff to rely on the report and that knowledge was not enough. However, Wilcox J himself accepted (as McHugh J did, remember) that proof that the defendant intended to induce the plaintiff to rely is not necessary to establish a duty of care.80 At one and the same time therefore, Wilcox J seems to have said that it was the lack of an intention to induce reliance on the defendant’s part that was fatal to the claim; and that such intention was not necessary for a duty to exist. 76 77 78 79 80

ibid 298. Charben (n 6). ibid [212]. ibid [213]. ibid [211].

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This is clearly very problematic and it is hard to understand why, on the facts of Charben, a duty was not found. The most likely explanation is that Wilcox J was simply reluctant to step out upon such uncertain ground and did not need to do so, because the plaintiff had a clear, alternative, statutory claim for misleading and deceptive conduct, which succeeded. Other lower court decisions since Esanda do little to resolve the uncertainty. In Derring Lane Pty Ltd v Fitzgibbon in 2007, the Victorian Court of Appeal ultimately upheld the trial judge’s view that a duty of care could be owed on either Brennan CJ or McHugh J’s approach.81 By contrast, in ABN Amro v Bathurst Regional Council,82 the Full Federal Court thought it appropriate to apply the basic Barwick test as approved in Tepko, even in claims of the three-party, ‘indirect reliance’ pattern.83 One of the defendants in this complex proceeding sought at one stage to try to deny liability by relying on McHugh J’s more restrictive ‘intention to induce reliance’ test, but was apparently knocked back by the Court on the basis that the criteria of the two-fold test accepted in Tepko were sufficient.84 The upshot is that courts in three-party cases of the Esanda configuration are faced with three slightly different types of approach to apply, all of which have High Court approval. The first is the straightforward, two-stage Barwick approach based on knowledge and reasonable reliance, approved in Tepko. The second is Brennan CJ’s approach in Esanda, which is very similar, but which focuses on the foreseeability of economic harm at a higher level or probability (‘very likely’) and which clearly insists that the purpose for which an indirect recipient of information relies must be of the same type as that for which the defendant intended to supply the information. The third, which stems from San Sebastian and the judgment of McHugh J in Esanda, is an approach based on proof that the defendant intended the plaintiff to rely on the advice or information given. The differences between these approaches may appear slight and on many factual configurations will be immaterial, but cases like Charben show that they are real. That case also demonstrates the way in which courts are able to avoid grappling with the uncertainties of negligence law by deciding cases on an alternative, statutory basis.

D. Stabilising the Duty Test and the Subsidiary Role of Intention The uncertainties about the duty issue are unhealthy and need to be resolved. Here, I suggest that the duty criteria in the type of three-party case we have just examined should be no different to those that apply to the basic, two-party case. The appropriate approach is the two-stage version of the Barwick test, as applied by the High Court in Tepko, but accepting the slightly broader views of the minority in that case as regards the degree of knowledge a defendant must have before a 81 82 83 84

Derring Lane Pty Ltd v Fitzgibbon [2007] VSCA 79 [31]. Amro (n 32). ibid [577] (Jacobson, Gilmour and Gordon JJ, citing Brennan CJ in Esanda). ibid [810]–[811].

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duty can arise. Where information, opinion, or advice provided by a defendant is obtained by a plaintiff—whether directly from the defendant or indirectly via a third party—and relied upon, a duty of care should therefore arise in respect of the plaintiff ’s economic interests if, and only if: 1. the defendant knew or ought to have known that the plaintiff (whether individually or as a member of an ascertainable group) was likely to use the information in respect of some serious matter of business, and 2. the plaintiff reasonably relied upon that information in entering into the transaction in question. Although the defendant’s actual and apparent intentions and purposes do not themselves create the duty in such an instance, they are not irrelevant. In fact, they are germane to both limbs of the test in the following ways. First, the defendant’s actual intentions as to how information will be used are clearly relevant to his actual knowledge that it may be relied on by the plaintiff. If he intends the information to be used by the plaintiff for investment purposes, for example, he simply cannot deny that he knew it was likely to be used in this way. On the other hand, he may still have actual or constructive knowledge that it would be used by the plaintiff for such a purpose (and therefore owe a duty) even if he does not actually intend that use. It is his knowledge, not his subjective intention, that is crucial. For the same reason, a defendant’s disclaimer of responsibility is not invariably fatal to the existence of the duty of care.85 Such a disclaimer may (in fact will it not always?) demonstrate that the defendant does not subjectively intend the plaintiff to rely, but this does not preclude his actual or constructive knowledge that the plaintiff will in fact do so. The fact that it is knowledge and not intention per se that is important is demonstrated by those rare but important cases in which courts have been prepared to impose duties even when a disclaimer is present.86 Secondly, the defendant’s apparent intentions (those that would appear to a reasonable observer) and the apparent purpose of the information that has been given are relevant both to the defendant’s constructive knowledge of the use to which it might be put and to the question whether it was reasonable for the plaintiff to rely on it in the way that he did. The principles here are exactly the same as in product liability cases and there is no magic or mystery about them. A defendant manufacturing a microwave oven owes no duty of care to a consumer who uses the oven to dry his chihuahua after a long walk in the rain, rather than to reheat his lunch. This is because the manufacturer cannot reasonably know that the oven will be put to this use, given the reasonably apparent purpose of such an oven. Furthermore, 85 Evatt (n 9) 570 (Barwick CJ); Morrison-Knudsen International Co Inc v The Commonwealth (1972) 46 ALJR 265 (HCA); BT Australia Ltd v Raine & Horne Pty Ltd [1983] NSWLR 22 (NSW SC); Derring (n 81). See also Smith (n 54); Micron Construction Ltd v Hong Kong Bank of Canada (2000) 184 DLR (4th) 75 (BCCA). In Campbell v Backoffice Investments Pty Ltd (2009) 238 CLR 304 (HCA), 321 (a case on the statutory cause of action for misleading and deceptive conduct) Gleeson CJ indicated that disclaimers often go to the issue of reliance and causation. 86 See cases listed at n 85 above (save Campbell which concerns a different cause of action).

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an owner using the oven for such a purpose is likely to be regarded as the real legal cause of the unfortunate dog’s death, not the defendant manufacturer. It is a case where we reprimand him for his own stupidity, not one where we award him compensation against the manufacturer. As with products, so with words, which are simply products of a more ephemeral kind. One who ignores the apparent purposes of information (that is, the purposes which a reasonable person would think it had) and relies on it for some other, unreasonable design of his own is simply the cause of his own financial loss and must bear the risk of his decision to invest on the back of it. It may be hard, I accept, to accuse an investor of quite the same rank stupidity as the dog owner, where he uses information for a different financial purpose to that for which it was produced, but this is simply a matter of fact and degree. I would prefer to say that the claim fails for lack of causation, or for remoteness of the damage, but accept that the current strategy of courts is to say that no duty of care is owed in such a case. This way of understanding the role of a defendant’s actual and apparent intentions is potentially helpful, I suggest, in resolving some of the current tensions in the case law. It means that there is no separate or distinct, restrictive, intentionbased ‘test’ that applies in controversial misstatement cases of a remoter pattern, but it still keeps faith with the regularly stated judicial view that the purposes for which advice is given are of crucial importance in working out whether a duty of care is owed in respect of it. The approach is also consistent with courts’ now almost universal insistence that duties of care in misstatement cases of all configurations are imposed by courts, not genuinely ‘voluntary’ in the sense of being a product of the defendant’s own will or apparent intention as such. And it can help to explain why judges, including McHugh J himself, have expressly accepted that it is not necessarily fatal to a misstatement claim that the defendant did not intend the plaintiff to rely on his advice. Understanding courts’ references to intention in this way is, in my view, preferable to understanding modern negligence liability as the product of the parties’ subjective or objective intentions, as voluntarists do; or using ‘intention to induce reliance’ as a restrictive alternative ‘practical test’87 for duty in categories of misstatement case in which the risks of indeterminate liability are perceived to be higher than usual. True it is that when the law sets about protecting new, more controversial types of interest, it tends first to protect them against intentional interference; and then only later to lower the bar so as to admit negligence claims.88 But the signs are that the law of negligence has moved beyond restrictive ‘intention’ tests in deciding when to protect economic interests, just as it has moved beyond restrictive contractual paradigms as a way of organising its thinking about the modern law of tort. Where courts currently insist on intention in negligence 87 This is how the concept is understood in Lowe (n 72) 682 (Brooking J). It is also clearly how intention requirements are understood in the US. 88 This can be seen, for example, in the law relating to psychiatric harm, where intentional interferences were actionable long before careless ones: Wilkinson v Downton (1897) 2 QB 57.

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cases, it is not because intention is an element of the cause of action in negligence, as it is in deceit. It is because it is required for some other ‘practical’ (ie pragmatic) reason.89 Historically, this reason relates to the need to keep the bounds of liability under control for fear of creating indeterminate or market-distortive liabilities. But the concept of intention is not needed, I suggest, as a ‘control test’ artificially restricting the ambit of the duty of care to these instrumental ends.

E. Accommodating Residual Concerns I suspect at this point that some pragmatists may think that adopting the basic Barwick two-stage test in all cases in which a plaintiff has relied on information or advice may be going too far, and that it does too little to deal with concerns about indeterminate liability in three-party cases. Properly understood and applied, this is not the case. The knowledge requirements adverted to in Section IIIB are perfectly adequate to perform this task. The requirement that a defendant’s reliance on information be reasonable ought also to cut out a very large number of speculative cases in which plaintiffs stand in remote, indirect relationships with those upon whose advice they rely. It is also always open to a defendant providing information on a commercial basis to limit or exclude its liability for carelessness; and when this is done courts are then also likely to refuse to impose any duty of care towards remoter parties that would undermine the way in which the defendant’s liability has been contractually allocated.90 It is important to remember in this regard that the proposed two-stage test must always be met for a duty to be owed, but that such a duty can always still be negated if it would contradict a contractual allocation of economic risk, subject an advisor to conflicting duties,91 undermine the coherence of other rules of law,92 or frustrate the purposes of a statutory scheme under which advice has been supplied. Remember also that, even if information is provided without a contract, a disclaimer of liability can normally provide a defendant with a good measure of protection for reasons already discussed. If all of this is insufficient to allay residual concerns about extensive or indeterminate liabilities in cases of the remoter three-party configuration such as Esanda and Charben, on the basis that clearer, fixed limits to liability are needed to protect the health of information markets and to enable defendants to set their pricing and provide for sufficient levels of liability insurance, I suggest that a viable way of

89

Lowe (n 72) 678–79, 682 (Brooking J). For a clear, recent example of the way in which economic duties in tort give way to such contractual allocations of risk, see Brookfield Multiplex Ltd v Owners Corporation Strata Plan 61288 [2014] HCA 36. This development may meet Lord Reid’s legitimate concern in Hedley Byrne (n 1) 483 that contractual exclusions are likely to be ineffective to protect advisors against liability to third parties. Lord Reid himself accepted that such exclusions might operate against such parties where they are known about: ibid. 91 As in Clarke v Bruce Lance [1988] 1 WLR 881 (CA); Gran Gelato Ltd v Richcliff (Group) Ltd [1992] 2 WLR 867 (Ch). 92 See Sullivan (n 58). 90

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meeting these concerns is to introduce a system of statutory liability-caps for advisors operating in particularly high-risk areas of the information economy, such as auditors and public bodies.93 The benefit of caps is that they can be introduced after a thorough empirical study of the state of the relevant markets, which relieves courts of the need to limit liabilities through their own guesswork about the potential empirical effects of tort liabilities, when they really have no reliable facts and figures to go on. Furthermore, since insurance and information markets seem to go through cyclical phases of health just like the rest of us, caps can be adjusted periodically and relatively quickly, to adjust to prevailing social conditions. The resulting pattern of liability provides a reasonable balance in terms of the onus of protection as between the suppliers and users of advice. Furthermore, if advisors are still concerned that they may end up paying the bill for a plaintiff ’s full economic losses when they are really only ‘secondarily’ responsible for them relative to some other fraudster or negligent party who is more at the heart of the matter, they are now accorded significant additional protections in Australian law as a result of the introduction of reforms that abolish the principle of joint and several liability in a wide range of cases. My own view is that this abolition was a precipitous step too far, taken on too little evidence, and that capping is probably a more effective mechanism for the reassurance of markets.94 In any event, however, the point is that advisors in Australia need have no anxiety about having to shoulder financial losses caused by other wrongdoers who are allegedly more centrally implicated in a financial disaster, but who are now insolvent.

F. Reconciling the Rules with the Multifactoral Approach A final puzzle is how the rules I have outlined above for misstatement cases sit with the ‘multifactoral’ approach to duty that is now taken by the High Court in cases falling outside existing precedents. According to this approach, in ‘new’ cases, courts consider a number of different ‘factors’ or ‘salient features’ in determining whether a duty is owed. The only fixed requirement for a duty is that the loss be reasonably foreseeable. Otherwise, no factor is absolutely necessary and courts simply weigh them up in the round.95 In one recent case, it has been suggested that 93 Capping provisions already exist in several jurisdictions. They tend to operate in one of three main ways: (i) by permitting individual contractual exclusions of liability to clients, where reasonable (see, eg, the Companies Act 2006 (UK) ss 532–538—auditors); (ii) by providing a statutory framework for the approval of industry-specific limitation of liability schemes (see, eg, the Professional Standards Act 2004 (Qld) and its equivalent uniform legislation in other States and Territories); or (iii) by imposing discrete statutory liability caps on advisor liabilities (see, eg, the Ontario Securities Act 1990). 94 See K Barker and J Steele, ‘Drifting Towards Proportionate Liability : Ethics and Pragmatics’ (2015) 74 CLJ 1. Note that the protections for advisors in Australia appear to go further than in the US in so far as they sometimes cover advisors even when it was arguably the advisor’s job to detect and protect against third-party fraud: Hunt & Hunt v Mitchell Morgan Nominees [2013] HCA 10. 95 Caltex Refineries (Qld) Pty Ltd v Stavar (2009) 259 ALR 616 (NSWCA) [102]–[105] (Allsop P); Makawe (n 68). Interestingly, this is not how the multifactoral approach began in the judgments of McHugh J in Crimmins and Perre (above n 2). It seems, for example, that each stage of the (shorter) list

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there could be more than 18 different factors to consider,96 depending on the sort of case one is dealing with; and that the list is an open one. This is not the place to provide a full critique of this approach, but one can see how, if multiple, flexible factors were to be allowed to replace basic duty rules in cases of negligent misstatement, liability would become almost impossible to predict. The law would rapidly move to such a high state of entropy as to dissolve into total chaos. Some misstatement cases of the three-party configuration have recently begun to bump up against the multifactoral approach and the Full Federal Court has interestingly gone so far as to suggest that ‘notwithstanding the guidance provided by the Evatt [Barwick] principles’ a court must now undertake a ‘case-by-case identification of whether a duty arises’ in a negligent misstatement case ‘consistently with the rather broad principles [ie factors] mentioned in Perre v Apand and other cases that deal with liability for pure economic loss’.97 Herein lies the potential for a set of reasonably clear, discrete rules governing the duty question in misstatement cases to be replaced or unsettled by a broad and uncertain smorgasbord. This is clearly not what the High Court intended and we must be careful that it does not happen. The rules set out above provide a reasonably predictable pattern and should not now be replaced by an open list of discretionary factors tout court. Nor, I suggest, would it be helpful to lump misstatement cases in with all other types of pure economic loss case in a grand mélange, since they evince at least some discrete concerns. Rather, the multifactoral approach should be used only in cases that fall entirely outside existing precedents (ie those that are truly ‘novel’)98 as a tool to assist in the further development of legal rules in existing categories of case. Courts are aware of these issues and are doing their best to reconcile the traditional rule-based approach with the more open-textured, multifactoral one. In Amro, for example, the Full Federal Court thought that there was no need to give the factors of ‘indeterminate liability’ or ‘vulnerability’ a distinct role in reasoning about misstatement cases, precisely because the rules in such cases have already been designed in such a way as to accommodate them.99 This is a sensible approach. Whilst it is therefore true to say, as the High Court has done on several occasions, that there is a clear link between the ‘vulnerability’ factor that is now widely used to assist in determining the existence of duty in new cases and the rule

of factors identified in Perre needed to be satisfied before one could proceed to consider the duty issue further—see Perre at [133] and even more clearly Crimmins at [93]. Those small certainties now appear to have been discarded. This would be a matter of dismay to McHugh J, who emphasised the need to keep the list of factors small and directly relevant to the relevant category of law, failing which decision making would lapse into discretionary remedialism: Crimmins at [77]. 96

Caltex (n 95). Kestrel (n 32) [99] (Gray, Mansfield and Tracey JJ). 98 Amro (n 32) [590]. 99 ibid [589], [598]. For early suggestions as to how the concept of vulnerability should be understood and used, see J Stapleton, ‘Duty of Care: Peripheral Parties and Alternative Opportunities for Deterrence’ (1995) 111 LQR 301. 97

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in misstatement cases that a defendant’s reliance on advice must be ‘reasonable’,100 the latter rule should be understood as a concrete manifestation of the broader principle, rather than the broader principle now itself being used to determine every misstatement case. General principles should be used to inform the development of particular rules pedetemptin in discrete types of case, not as a substitute for rules. The ‘factors’ which appear most obviously relevant to the development of rules regarding misstatement duties are the foreseeability of harm, the defendant’s knowledge, indeterminate liability, respect for the defendant’s autonomy (the need not to undermine legitimate competition or free social interaction), conflict with contractual allocations of risk or statutory purposes, and the need to develop the law of tort in a way that coheres with other fields of law dealing with misstatements and economic loss, such as the law of defamation.

V. Conclusions Hard cases may make bad law, but no cases make for worse law still. If a consequence of the generous statutory regime governing misleading and deceptive conduct in Australia is that there is now little incentive for most litigants to invoke the law of negligent misstatement, this will be to the detriment of those who still need to rely upon it, and it will impede the development of the common law as a whole. Like the demon in Fuseli’s Nightmare,101 the statutory regime will have stolen the common law’s breath, impeding its aspiration to a maturer state. Without clear precedents being litigated and set, the common law system loses headway and founders. At least some of the current confusion in the negligent misstatement field in Australia stems, I have argued, from points of difficulty not being litigated to a clear resolution before the High Court. Some of this is chance, some of it design. The solution I have suggested above to the uncertain legacy of Esanda is one that unifies all cases in which information or advice is detrimentally relied on by a plaintiff, whether the factual configuration is of a ‘direct’ two-party or ‘indirect’ three-party type.102 This relatively simple approach was adumbrated long ago by one of Australia’s finest judicial minds. It avoids the traps and fictions of voluntarism and provides a defensible balance between the respective moral and

100 Perre (n 2) [126]–[128] (McHugh J) (reliance is just one indicator of vulnerability in the duty of care debate). 101 The Nightmare, by Henry Fuseli (1781) is regarded as one of the classic depictions of the mythical demon responsible for the medical condition we today know as sleep paralysis. Other culprits falsely accused of the same evil in folklore include ageing hags, ghosts, cats and (in some cultures) even mice. 102 This solution is not appropriate as it stands for three-party cases of the second configuration identified in Section IV. Reliance by the plaintiff must drop out of the picture in such cases, unless it is to be reduced to the ‘general’ concept criticised at n 64 above. Knowledge is likely to remain important as a mechanism for dealing with indeterminacy issues.

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economic interests of information suppliers and users. To the extent that the normative compromise it represents needs any further adjustment to account for its perceived economic or social consequences, I maintain that it is really for governments to intervene, once the proper research has been done to prove the existence of some genuine need for further interference in the information market. In this respect, the future of negligent misstatement liability is not just a matter of setting the proper point of balance between the interests of advisors, plaintiffs and markets, and of providing rules that are clear enough for all to understand; but also a question of striking the right balance between the respective roles and competencies of judges and governments.

APPENDIX

HEDLEY BYRNE & CO LTD v HELLER & PARTNERS LIMITED High Court, Queen’s Bench Division No. 14 Transcript of Judgment of McNair J, dated 20th December 1960

MR JUSTICE MCNAIR: 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 personally 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. In these circumstances, though the Plaintiffs in their Statement of Claim alleged that the references were not honestly given (which claim was abandoned before me), they seek to recover the damages which they have suffered on the allegation that the references were given negligently and without any or any reasonable care in that the expressions of opinion contained in the references were not justified by the facts as known to the Defendants. The claim as so put raises in a neat form the question whether, in circumstances such as these, a person who has acted on a banker’s reference so given can succeed short of proving fraud. The case also raised questions as to the applicability of Lord Tenderden’s Act to a cause of action in negligence, if such a cause of action exists. The facts and circumstances disclosed by oral and documentary evidence adduced at the hearing I find to be as follows. The Plaintiff Company carry on business at 140 Park Lane, London, as advertising agents. The Chairman and Managing Director is one J O Hedley, who was called before me. There was also called before me a Mr C E Gaunt, described as the accounts executive of the Plaintiff Company, and Mr Draycott, the Secretary. The Plaintiffs’ bankers were

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the Piccadilly Branch of the National Provincial Bank, of which Mr Webber was at the material time the Assistant Manager. It appears that under arrangements with the Newspaper Proprietors Association, and I think also the television companies, only recognised advertising agents who have satisfied these bodies as to their standing and financial resources are at liberty to place orders for advertising space or time with those bodies, and then only on terms that they assume personal responsibility for the payment of the accounts. They in effect act as del credere agents for their customers. The Plaintiffs were such recognised advertising agents. Easipower Limited was incorporated some years ago by a Mr F A Williams and developed a successful business in the manufacture of a range of domestic electrical appliances. Before the matters in issue in this action arise, the whole of its share capital had been taken over by Pena Industries Limited, the parent company of a group of companies carrying out various industrial activities. Amongst these companies was a Company known as Concor Limited, who acted as bankers for the group. Heller & Partners Limited was formed in 1953 to take over a partnership known as Heller & Partners which had theretofor carried on business as merchant bankers. Mr Lipman Heller joined the business in 1945, and at all material times was a director of the Company. Mr Fairburn hereinafter referred to was another Director; Mr Isadore Heller, a brother of Mr Lipman Heller, was the chief administrative officer of the Defendant Company. Also closely associated with the Defendant Company through common shareholding is a Company known as City Merchants Limited. Early in 1957, Mr Hedley and Mr Gaunt had a meeting with a Mr Greenwood, who told them that he had formed a company known as Applied & Marketing Advertising Limited, which was not a recognised advertising agency, and that he had been approached by a Mr Carling, the Chairman of Pena Industries Limited, to act as consultant in all the Pena group advertising activities, including those of Easipower Limited. As the result of this approach, towards the end of 1957 the Plaintiffs, on behalf of Easipower Limited, placed some small orders for advertising worth £1,000 or so. Later the same year, Mr Greenwood outlined proposals for a very extensive advertising programme involving the expenditure of £100,000 on behalf of Easipower Limited and certain associated companies. The reference relating to Easipower Limited was given by Martin’s Bank Limited, who reported as follows: A respectably constituted Company whose trading connection is expanding speedily. We consider the Company to be quite good for its engagements. A transaction of the nature and magnitude indicated in your letter is larger than we normally expect the Company to undertake but it enjoys substantial and responsible support and we feel confident that they would not undertake a commitment on that scale unless they could arrange to fulfil it satisfactorily. There is a debenture in favour of the Bank.

It does not appear that at that time Heller & Partner Limited were asked for a reference as to Easipower Limited, though they did give a reference in relation to Enganor Finance Limited, apparently one of the Pena Group. Nothing however

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came of this proposal at the time. By April or May, 1958, it became known to Mr Hedley that Pena Industries Limited were thought to be in financial difficulties. About this time further discussions took place between Mr Hedley and Mr Greenwood in relation to the proposal that the Plaintiffs should undertake a substantial advertising campaign on behalf of Easipower Limited, to which Mr Hedley agreed on the assurance by Mr Greenwood that the Defendants had provided, or were prepared to arrange, for satisfactory finances for Easipower Limited. It was further agreed that Easipower Limited should be granted by the Plaintiffs one month’s credit from the date of invoice, which would be sent at the end of the month in which the advertisement appeared. Schedules were drawn up setting out the time and placing of the advertisement proposed, and in July and August orders were in fact placed with the television companies by the Plaintiffs for advertising time costing, after certain modifications, £8,615, and between 16th and 19th August very substantial bookings of advertising space in newspaper periodicals were also placed. On 18th August (that is, after the bulk of the orders had been placed) Mr Draycott, on the instructions of Mr Hedley, telephoned to Mr Webber asking for a reference as to the ability of Easipower Limited to meet a debt of £8,000 to £9,000, this being the figure that Mr Hedley estimated would be at risk at any one time. Mr Webber telephoned the City office of the National Provincial Bank, who in turn made a telephone inquiry of the Defendants. The account of the inquiries and the reply as given by Mr Lipman Heller was recorded in a Minute dictated by Mr Heller at the time. This Minute was accepted by the parties before me as being accurate. It is in the following terms: Heller & Partners Limited. Minute of telephone conversation National Provincial Bank Ltd. Call from 15, Bishopsgate, EC2. Date 18.8.58. Person called, L Heller. re Easipower Ltd. They wanted to know in confidence and without responsibility on our part, the respectability and standing of Easipower Limited and whether they would be good for an advertising contract for £8/9,000. I reply, 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 Limited from the liquidator. We believe that the Company would not undertake any commitments they are unable to fulfill.

On 21st August Mr Webber sent to the Plaintiffs the following reply: Confirmation of our telephoned reply. 21st August, 1958. Confidential. For your private use and without responsibility on the part of this Bank or the Manager. Hedley Byrne & Co Ltd. Dear Sir, In reply to your telephone inquiry of 18th August Bankers say: ‘The subject recently opened an account with us. It is a respectably constituted Company and is considered good for business engagements. It is a subsidiary of Pena Industries Limited, which is in liquidation, but we understand that Mr Williams the Managing Director of E Ltd, is endeavouring to buy the shares of E Ltd from the liquidators. We feel the subject Company would not undertake commitments it could not fulfill.’ Yours faithfully.

That is signed by Mr Webber, the Assistant Manager. For completeness I should add that there is a contemporary note in the handwriting of Mr Draycott’s secretary

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which purports to record the summary of a telephone conversation on 18th May as follows: ‘August 18th. ‘phoned Bank who gave a fair but guarded report upon future credit angle of new set-up’, but as neither Mr Draycott nor Mr Webber was able to confirm this conversation I make no finding as to its accuracy. I now turn to the facts as known to Mr Lipman Heller or to his brother Isadore Heller whom he consulted before giving the reference above referred to. Early in 1958, Concor Limited, who as previously stated acted as bankers for the Pena Group, and were responsible for making financial inquiries on behalf of the other companies of the group, approached the Defendants to see whether they would grant financial assistance to the group including Easipower Limited. The Defendants specialise in two methods of granting financial assistance to manufacturing companies who are short of capital. The first scheme, known as Sales Finance, is in outline as follows: The proposed borrower (in this case Easipower Limited) sets up a subsidiary sales Company (say Easipower Appliances Limited) Easipower Limited having obtained and accepted an order for the sale of a quantity of their products to a customer who requires a month’s credit sells the goods covered by the sales agreement to the proposed lender or its associate in this case City Merchants Limited, for a percentage of the sale price, say, 75 per cent which is paid forthwith to the borrower. City Merchants Limited then resell the goods to the sales company for an enhanced figure sufficient to cover what is in effect their interest charges on the loan taking 30 day bills from the sales company who implement the sales to the customer. The second scheme, known as stock finance, provides as follows: The borrower sells the goods in advance of any sale to its customer to City Merchants Limited, for 75 per cent of their eventual sale price payable forthwith in cash, the goods remaining meanwhile on the premises of Easipower Limited, in a store the key of which is under the control of City Merchants Limited. When Easipower Limited finally effect a sale to a genuine customer, they buy the goods back from City Merchants Limited at an enhanced price, the percentage of the increase depending upon the length of time between the initial purchase by City Merchants Limited and the eventual resale. Both these schemes are admittedly schemes intended in effect to provide advances on the security of goods in such a way as to avoid the operation of the Bills of Sale Acts; but it is unnecessary for me to express any opinion as to their legal validity. While these discussions initiated by Concor Limited through, I think, Mr Williams were proceeding, it became apparent that Pena Industries Limited were in financial difficulties and were unable to continue financing Easipower Limited, which they had been doing through Concor Limited, to the extent of £45,000. In these circumstances, Mr Williams, in whose capacity and integrity the Hellers had complete faith, conceived the scheme of buying back from Pena Industries Limited the shares in Easipower himself. This project, however, depended on two factors, (1) that Pena Industries Limited, or their liquidator, were prepared to sell the shares and (2) that the Defendants were prepared to grant financial assistance

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to Easipower Limited, whether by sales finance or stock finance or otherwise, at any rate sufficient to keep Easipower Limited going until the Autumn when it might be expected that the sales of electric blankets, on the production of which Easipower were concentrating, would be substantial. Mr Edwards put before Mr Heller an elaborate series of financial estimates in support of his argument which the Hellers accepted, that by November, 1958, Easipower Limited would on their trading account show a profit of over £46,000. During the early summer of 1958, as a result of these discussions, the following transaction was entered into by the Defendants. (1) On 9th May they took from Concor Limited, who were customers of the Defendants and were being pressed for a reduction of their overdraft, an assignment of a debt of £45,730 due from Easipower Limited to Concor Limited. (2) In May or June they agreed in principle to grant sales finance and stock finance to Easipower Limited on terms designed to secure that out of the money received from City Merchants Limited, the debt of £45,730 taken over from Concor Limited, would be liquidated—as it was by 9th July, 1958. The formal agreements to this effect were executed on 14th July, 1958. (3) The Defendants having been informed, as was the fact, that Martins Bank Limited, to which Easipower Limited were indebted on overdraft to the extent of £15,164 18s 3d secured by a debenture creating a floating charge on the undertaking and property of Easipower Limited, were unwilling to continue the overdraft owing to the fact that certain cheques had been improperly drawn by those in charge of Easipower Limited (in the absence of Mr Williams abroad) for purposes other than those permitted by the overdraft, on or about 13th May, 1950, took over from Martins Bank Limited Easipower Limited’s debt of £15,164 18s 3d together with the debenture and agreed on 23rd May, 1958, to grant to them an overdraft up to the limit of £50,000. As part of these arrangements, Mr Williams deposited with the Defendants as his personal collateral security transfers for securities of substantial value, together with a life policy for £20,000, and continued with his negotiations with the liquidator for the repurchase of the shares of Easipower Limited. It soon, however, became apparent that even with the overdraft facilities of £50,000, Easipower Limited were unable to pay their current liabilities as they fell due, and they were only kept afloat by the action of the Defendants in extending the limit of the overdraft temporarily until the end of August by £5,000. Throughout this period Easipower Limited were only able to keep their creditors at bay by paying off the most pressing creditors many months after their debts fell due for payment quite apart from being faced with substantial inter-company indebtedness, which it is true to say was in dispute. If not insolvent, as I suspect they were, they were showing all the signs of early insolvency. On August 18th the overdraft stood at £53,865. All the facts mentioned above were within the knowledge of the Defendants on 18th August. In my judgment at that date neither Mr Lipman Heller nor Mr Isadore Heller, who was in charge of the Easipower Limited Account, had any reasonable ground for supposing that the overdraft would be reduced below £55,000 by the

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end of August. I accept without reservation the concession made by the Plaintiffs during the course of the hearing that the reference given by Mr Lipman Heller on 18th August was honestly given. I now turn to the question whether in fact Mr Lipman Heller was negligent in giving the reference as set out above and for the purpose of this inquiry I assume that he was under a duty to exercise reasonable care in giving his reply. Mr Heller in his evidence stated that he regarded the reference which was given after consultation with Mr Isadore Heller as a very guarded reference, and stated that it contained three red lights or warnings. First, that the statement that ‘the Company recently opened an account with us’ meant that he could only speak from a short experience of the account; secondly, that the expression ‘good for its normal business engagements’, unqualified by the words ‘including your figures’ indicated that no expression of opinion was made as to its creditworthiness for £8,000 or £9,000. It was conceded that the omission of the word ‘normal’ when the reference was passed on to the Plaintiffs is immaterial. Thirdly, that the statement that ‘the Company is a subsidiary of Pena Industries Limited which is in liquidation’ was a warning to make further inquiries before giving extended credit, because the liquidator could put the Company into liquidation at any moment. Mr Heller agreed that the qualifying phrase introduced by the word ‘but’ was a balancing factor, though he stated that the light was still glowing red. At the conclusion of his evidence, I stated that I would infer that he would give the most favourable reference he could for his clients and that accordingly this was the best reference which he could honestly give on the information available to him. Mr Heller agreed that this was the correct inference. Mr Hedley stated that he regarded the answer given as satisfactory for the modified sum for which he was inquiring, that is to say, £8,000 to £9,000, and that, if it had been unsatisfactory, he would have gone to Easipower Limited and requested them to pre-pay their accounts, and that if this request was not complied with he would have taken immediate steps to cancel the outstanding orders so far as he could. In my judgment, whatever may be the meaning which certain expressions in the reference may be understood to have as between bankers—and on this the evidence was not very precise—the reference as a whole and the particular expressions relied upon cannot as a matter of construction reasonably be held to bear the interpretation which Mr Heller seeks to place upon it or them. As a matter of construction, I would regard the reference, as Mr Hedley did, as a favourable reference for £8,000 to £9,000 without any real qualification, and that it meant that Easipower Limited could safely be granted credit for that sum. 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. Amongst these facts was the vital fact that the survival of Easipower Limited as a trading concern depended upon the uncertain contingency that Mr Williams would be successful in purchasing

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the shares of Easipower Limited which he had been unsuccessfully attempting to do since May. I continue with my chronological findings. A letter from Mr Williams to the Defendants dated 24th October, 1958, shows that Easipower Limited was still months in arrears in paying off its trade creditors and would still be in arrears in November even excluding the monthly invoices from the Plaintiffs which would be falling due from 5th November onwards. On 4th November, Mr Draycott, in the absence of Mr Hedley abroad, caused a further inquiry to be made by Mr Webber as to the financial structure and status of Easipower Limited, and in response to an inquiry from the National Provincial Bank as to whether the Defendants considered Easipower Limited ‘trustworthy in the way of business to the extent of £100,000 per annum advertising contract’, the Defendants, by one of their directors, Mr Fairburn, after consulting Mr Isadore Heller replied in writing on 4th November as follows: Heller & Partners Limited. Confidential. For your private use and without responsibility on the part of this Bank or its officials. To the Manager, City Office, National Provincial Bank Limited. Dear Sir, in reply to your 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.

This was passed on in the same form by the Bank to the Plaintiffs on the 14th November. Though it is true that this reference gives a somewhat guarded warning as to the amount for which Easipower Limited were considered creditworthy, it seems to me clear that in view of the facts above enumerated and the further fact that by this time it had become clear that Mr Williams’ estimates made in May as to the Company’s financial position in November had been wholly falsified and that Mr Williams had still failed to purchase the Easipower shares, this was a reference which could not have been given by a person exercising reasonable care, and I accordingly hold (on the assumption stated above as to the existence of the duty) that in respect of this reference also the Defendants were guilty of negligence. The remaining facts may be shortly stated. On 20th November, the Defendants gave Mr Williams formal notice that the overdraft must be reduced to £40,000 by the end of the month. This demand was not complied with. On 27th November Easipower Limited gave instructions to the Plaintiffs to cancel all outstanding commitments. This instruction was complied with, but there remained liabilities amounting to £17,661 ls 4d in respect of commitments which the Plaintiffs were unable to cancel. On 2nd December the Defendants declined to honour a cheque for £2,711 in favour of the Plaintiffs drawn by Easipower Limited. Some time in January, 1959, the Defendants appointed a Receiver under their debenture and Easipower Limited was forced into liquidation. In this liquidation the Defendants as secured creditors received payment of their overdraft and interest in full. The Plaintiffs

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proved in the liquidation for their unsecured debt and have received as a dividend the sum of £2,207 14s l0d, being a dividend at the rate of 2s 6d in the £, and it is anticipated that a further payment of the like amount will be paid in due course. The first question of law to be decided is as to the extent of the duty, if any, owed by the Defendants to the Plaintiffs in the circumstances set out above. Apart from authority there would be much to be said for the view that a person who answers an inquiry as to the creditworthiness of another, knowing that the inquirer will probably act upon the answer, should be held to be under a duty to exercise reasonable care in giving the answer and to be answerable in damages if the answer proves to have been given negligently. But the question is not free from authority. On behalf of the Defendants, the broad proposition was submitted as follows. Where Bank A asks another Bank B, either on its own account or on behalf of its customer, for a reference as to the credit of C a customer of Bank B, the only duty Bank B owes either to Bank A or to the customer of Bank A is to give an honest answer. This limitation, it was argued, was implicit in the reasoning of a long series of authorities from Derry v Peek (1889) LR 14 AC 337 onwards, and was finally determined to be correct by the House of Lords in Robinson v National Provincial Bank, 1916, 53 Scottish Law Reporter, page 390, House of Lords. The facts of that case were shortly these. Bank A at the request of the Appellant, one of three guarantors for a loan granted by an insurance company, applied to Bank B (the Respondent) for a reference as to the trustworthiness in carrying on business of the other two guarantors who were customers of Bank B. The agent of Bank B gave an honest but negligent and misleading reply. Lord Loreburn, prefacing his speech by the observation that it was an action for false and fraudulent representation, took the view that the action of the agent though culpably careless was not fraudulent and that the action failed. He distinguished cases of a breach of duty arising out of special relations between the parties such as solicitor and client. Lord Haldane used the following language: 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 Derry v. Peak (1889) L.R. 14 A.C. 337, in this House has finally settled, in Scotland as well as 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 applied to all other circumstances. 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 circumstances 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. In saying that I wish emphatically to repeat what I said in advising this House in the case of Nocton v. Lord Ashburton (1914 Appeal Cases, page 932) that it is a great mistake to suppose that because the principle in Derry v. Peak 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. Peak. The whole of the doctrines of fiduciary

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relationships, 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 recognizing that the duty of care may be established when such cases really occur.

It is true that so far as I can follow the account of the proceedings as reported in the Court of Session at page 163, no cause of action founded on negligence was alleged and these expressions of opinion may be said strictly to be obiter in so far as they deal with negligence, but they are clearly expressions of opinion of the highest authority which I ought to follow. Low v Bouverie, 1891 3 Chancery, page 82, and Nocton v Lord Ashburton, 1914 Appeal Cases, page 932, in which Low v Bouverie was approved at page 972, are relevant in this connection. In Parsons v Barclay & Co, 1910, 26 Times Law Reports, page 28, the Court of Appeal reversed a judgment against a Bank on a banker’s reference on the ground that there was no evidence to support the Jury’s finding that the reference was given without an honest belief that the statements contained therein were true. In the course of the judgment, Sir Henry Cozens-Hardy, Master of the Rolls, said: His Lordship wished emphatically to repudiate the suggestion 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 honestly from what he knew from the books and accounts before him.

Finally, in Candler v Crane Christmas & Co, 1951, 2 King’s Bench Division, page 169 (a case dealing with accounts prepared by the Company’s accountants for the purpose of a potential investor in the Company), the Court of Appeal, Lords Justices Cohen and Asquith, as they then were, Lord Justice Denning, as he then was, dissenting, held that a false but not fraudulent statement made by one person to another, although acted upon 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 qualified by the decision of the majority of the House of Lords in Donoghue v Stevenson, 1932 Appeal Cases, page 562. Lord Justice Asquith, at page 192, tersely sums up Lord Haldane’s view in Nocton v Ashburton in the words: ‘He affirms that liability for negligence in word has in material respects developed in our law differently from negligence in act.’ Lord Justice Cohen, at page 201, refers to the view expressed by Winfield on Torts, Fourth Edition at pages 386 to 387, deploring the fact that decisions in the Court of Appeal were definitely against the existence of any action in tort for negligent statements but expressing the opinion that it was open to the House of Lords to take the contrary view. Like Lord Justice Cohen, I express no view on this point. 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

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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 relationship beyond that of contract and fiduciary relationship. For completeness, I should add that the only authority to the contrary to which I have been referred is the decision of Mr Justice Avory in Batts Combe Quarry Company v Barclays Bank, 1931, 48 Times Law Reports, where Mr Justice Avory is reported to have said that he thought that the authorities showed that the only duty, if any (of the Bank giving a reference) was a duty not to be negligent. It is clear, however, that the learned Judge had accepted the argument on behalf of counsel for the Bank that the only duty was to answer honestly, and I am satisfied that in the passage to which I refer the learned Judge has been misreported. I would, however, mention that in Halsbury, Third Edition, Volume 2, at page 241, this case is cited as authority for the proposition that an action can be brought on the ground of negligence in the making by a Bank of a representation as to a customer’s financial standing. In my judgment this action fails on this point of law. Two further points taken on behalf of the Defendant should be mentioned. First it was submitted that (assuming that the action in negligence lies) on the facts here that the Plaintiff had not established any damage recoverable in law inasmuch as they could not have cancelled their commitments to the advertisers without a breach of their contract with the Defendants. As to this, seeing that Mr Hedley was not cross-examined as to his statement that he would have asked for prepayment if the references had been unsatisfactory and the circumstances surrounding the making of the contract were not sufficiently examined before me so as to enable me to form any opinion as to whether Mr Hedley would have a valid legal ground for demanding prepayment, I am content to say that this defence, even if sound in law, was not established on the facts. Secondly, counsel on behalf of the Defendants desired to keep open the point that Lord Tenderden’s Act would furnish a complete defence to any action framed in negligence on the ground that the first reference was purely oral and the second reference was not in the writing of the Defendants as it was not under seal. (See Hurst v West Riding Union Banking Co Ltd 1901, 2, King’s Bench Division at page 560.) I express no opinion on this submission, except to say that if (contrary to the view which I have adopted) an action in negligence lies, there are strong expressions of opinion in Banbury v Bank of Montreal, 1918, Appeal Cases, page 626, to the effect that Lord Tenderden’s Act only applies to fraudulent representations. Indeed, this decision is strongly relied upon by counsel for the Defendants in support of his argument that no action in negligence lies. MR SHAW: Before I ask for Judgment, may I draw your Lordship’s attention to one small point on the facts as your Lordship found them? Your Lordship, in dealing with the sales finance scheme, referred to the fact that City Merchants buy

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for 75 per cent and sell again to the sales company. Your Lordship did not mention that the other 25 per cent found its way back to the parent Company. It does give rather a misleading picture. MR JUSTICE MCNAIR: I think I mentioned that later, when I said that the debt of £45,000 taken over from Concor was liquidated out of these payments. MR SHAW: That is not quite the point, my Lord. Quite apart from the Concor transaction, your Lordship was dealing with sales finance as a method—not the application of the Concor debt—and your Lordship was shown the set of documents. I think they were put in at one time. The other 25 per cent, after the debts have been paid off to the sales company, goes back to the parent company, so City Merchants or the Defendants only get their charges, or what your Lordship referred to as the interest on the advances. From the account it does sound as if they are making 25 per cent out of the system. MR JUSTICE MCNAIR: What I have said is that City Merchants buy for 75 per cent and resell for 75 per cent plus. MR SHAW: That is correct, my Lord, but there is the other 25 per cent which must go to somebody, apart from the charges. It is quite correct what your Lordship has said, that they sell for 75 per cent plus, but when the customer ultimately pays there is the remaining 25 per cent which goes back to the parent company under the master agreement. So City Merchants have made their charges or interest on their advance, but they do not get the other 25 per cent. MR JUSTICE MCNAIR: Are you dealing with stock or sales finance? MR SHAW: Both, my Lord. City Merchants buy and sell for 75 or 77 per cent, whatever their charge may be, but the remaining 23 per cent must go to somebody, and it does not go to the Defendants. MR JUSTICE MCNAIR: If you can agree between you that my precise statement of the fact of sales finance is wrong, you may alter my Judgment, but I do not think it is. MR LOWE: Might I mention two matters, my Lord? One is a possible slip, or else I misheard your Lordship. Your Lordship said, when quoting the terms of the second inquiry in November, that the inquiry was about creditworthiness to the extent of £1,000 per annum. MR JUSTICE MCNAIR: The second inquiry, ‘trustworthy in the way of business to the extent of £100,000.’ MR LOWE: That is correct, and I misheard your Lordship. The other matter is this. Your Lordship will perhaps appreciate—I hope I may say this respectfully—that my clients wish to consider your Lordship’s Judgment and take the matter further. In that event, and in a certain other event, it might be helpful if your Lordship would assess the damages which your Lordship has not done. I suppose it would be the difference between the amount pleaded—

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MR JUSTICE MCNAIR: I have stated the necessary facts, namely, that there remain liabilities amounting to £17,661 18s 4d in respect of commitments which the Plaintiffs were unable to cancel. I have also stated the fact that they received a dividend on the liquidation of £2,274 14s l0d. The damages recoverable would be the difference between those two sums, and if the matter had been in my hands I should also have awarded interest at the rate of 4 per cent per annum from the 18th August, 1958. MR LOWE: If your Lordship pleases. MR SHAW: The Plaintiffs have not paid since the date— MR JUSTICE McNAIR: Not the 18th, the date of reference, the 21st August. MR SHAW: The Plaintiffs had not paid the money at that time when they placed the orders. It is a minor point, my Lord. Orders were placed in August, but there is no evidence as to whether the Plaintiffs actually paid. The interest could only run from when the Plaintiffs had paid or when, under the terms of credit, they should have paid. MR LOWE: My clients are content to accept the award of interest as from the end of December, 1958. MR JUSTICE MCNAIR: Very well, I think that is probably right. From 1st January, 1959. MR LOWE: I suspect there is another slip in your Lordship’s figures as regard the amount of the dividend, because the letter on page 122 recites a different figure from that mentioned by your Lordship. It is the letter from the liquidators to my clients of the 17th November, 1959, and at the foot the figure for the dividend is given as £2,207. MR JUSTICE MCNAIR: I took the figure given to me, and not from this letter, as I had not been referred to it. It must be corrected to £2,207 14s 10d. MR LOWE: I am much obliged, my Lord. MR SHAW: I ask for Judgment for the Defendants with costs. MR JUSTICE MCNAIR: So be it. MR SHAW: My learned friend has raised the question of damages. Your Lordship has not taken into account the further dividend which is anticipated. It must be taken into account in some form. MR JUSTICE MCNAIR: I do not take that view. As regards the further dividend, I take the view that if it is paid— MR SHAW: It will be another £2,000. MR JUSTICE MCNAIR: No. I take the view that as regards the further dividend, if it is paid the Defendants would be subrogated.

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MR SHAW: Then one way or the other the Defendants get the benefit. MR JUSTICE MCNAIR: But at this date it would not go in reduction of damages. MR SHAW: If your Lordship pleases. It comes to the same thing. MR LOWE: May I say one word on the matter of costs, my Lord? Your Lordship was about to grant costs to my learned friend on the basis that he has succeeded. Your Lordship recalls what the House of Lords did in Robinsons case, where they obviously felt sympathy for the Plaintiff who failed, and they directed no costs to either side. I was wondering whether your Lordship might not take the same view here. Your Lordship has found negligence against the Defendants, but has been constrained by the law to find against the Plaintiffs in the end. MR JUSTICE MCNAIR: I feel tempted to do so, but I do not think it would be right. I do not think there has been any misconduct by the Defendants in the conduct of the proceedings which would justify me departing from the ordinary order as to costs. MR LOWE: If your Lordship pleases.

INDEX

accepted responsibility, 52–53, 308 advisor liability, 191–92 allocation of liability, 4–8, 24–25, 192 enforcement of induced contracts, 198–99 measuring advisor’s liability, 199–202 joint liability, 193–95, 202–05 proportionate liability, 196–97, 206–11 reimbursement, 195 right to, 196 right to contribution, 195–96 several liability, 193–95, 202–05 subrogation to a subsisting right, 197 subrogation to an extinguished right, 197–98 Australia: deceptive trade practices, 159–60 breach of confidence, 151–53 breach of fiduciary duty, 146–50 compensatory jurisdiction and, 139–58 breach of confidence, 151–53 equitable estoppel, 150 equitable fraud, 136–39 jurisdiction to enforce representations, 143–44 making good of representation, 139–42 property rights and, 144–46 insolvency of wrongdoers, 194–95, 196–97 solicitor’s breach of fiduciary duty: Norton v Ashburton, 146–50 solicitors and opposing parties, 75–76 solicitors and potential beneficiaries, 75 valuers and third parties, 74–75 allocation of liability, 21–25, 217–19 advisee seeking damages from a contract partner: breach of contract, 198–211 reliance on incorrect information, for, 211–17 enforcement of the induced contract by the advisee, 198–99 measuring advisor’s liability, 199–202 joint and several liability regimes, under, 202–05, 212–14 multiple debtors, 192–98 proportional liability regimes, under, 206–11, 214–17 Anns v London Merton London Borough, 41, 261–62

Anns test, 263–64 impact in Canada, 266–69, 285–86, 287 see also two-stage Anns test assumed or imposed obligations, 51–55, 102 Canada, 276–77 contract law, 95, 110 non-Hedley Byrne actions, 95–98 proximity and, 93 special relationship and, 277 tort law: assumed obligations, 95, 102, 238 imposed obligations, 102, 238 voluntarily assumed obligations, 51, 55, 82 disclaimers, 62–64 express undertakings, 61–62 objectivity and fairness, 57–59 objectivity and intention, 59–61 rights and undertakings, 55–57 assumption of responsibility, 8, 31, 49–50, 81–82, 112–13, 117–18, 223–24 accepted responsibility, 52–53 Australia, 321–24 Canada, 262–63, 276 ‘end and aim’ rule compared, 288–89 knowledge, 274–75 plaintiff ’s reasonable reliance and, 271–78 requirement that the defendant play a role in duty of care, 271–72 voluntary nature, 277, 278 common law developments, 223–24, 230 Chandler v Cape Industries, 237 Customs and Excise Commissioners v Barclay’s Bank plc, 236–37 Hedley Byrne v Heller, 230–34 Smith v Eric S Bush, 238 Williams v Natural Life Health Foods, 234–37 concerns in New Zealand, 95 consent and, 56–57, 87 disclaimers, 62–64 Donoghue v Stevenson, 112, 272 express undertakings and, 61–62 fairness and, 57–59 Hedley Byrne, 85, 230–34 assumed or imposed obligations, 51–55 disclaimers, 62–64, 94 express undertakings, 61–62 objectivity and fairness, 57–59

360

Index

objectivity and intention, 59–61 rights and undertakings, 55–57 liability, 84, 97–98 omissions, 49 pure economic loss, 49 negligence, 103–09, 232–38 duty of care: employment references, 79–81 navigational lights cases, 73 police informers, 78–79 railway gate cases, 71–73 rescuers and rescuees, 68–71 safety regulation, 76–78 solicitors and opposing parties, 75–76 solicitors and potential beneficiaries, 75 valuers and third parties, 74–75 negligence plus model of misstatement, 90 neighbour principle compared, 84, 91 non-delegable duties of care, 49–50 non-voluntary nature of assumption of responsibility obligation, 64, 119 antecedent relationships, 64–65, 66–67 willingness distinguished, 64 obligation and, 50, 51–52, 54, 95–98, 238, 277 voluntary assumption, 55, 82 express undertakings and, 61–62, 105 intention to assume, 59–61 objective test, 57 rights and undertakings, 55–57 proximity and, 41–42, 44, 53, 65, 67–68 employment references, 79–81 navigational lights cases, 73 police informers, 78–79 railway gate cases, 71–73 rescuers and rescuees, 68–71 safety regulation, 76–78 solicitors and opposing parties, 75–76 solicitors and potential beneficiaries, 75 valuers and third parties, 74–75 reasonable reliance test, 31–32 reliance distinguished, 18, 42–43, 45, 262–63 detrimental reliance and, 89, 97–98 establishing proximity, 44 special relationship and, 117 voluntary nature, 12–13, 50, 53, 118–19 Australia, 277, 278 disclaimers, 62–64 express undertakings, 61–62 objectivity and fairness, 57–59 objectivity and intention, 59–61 rights and undertakings and, 55–57 see also reliance Australia: assessment in breach of confidence cases, 153–57 assumption of risk, 319 Australian Consumer Law, 170–72 apportioning fault, 186–88 contributory negligence, 186–88

mitigation, 188–89 reasonable defendant, 172–76 reasonable plaintiff, 176–78 remoteness and foreseeability of harm, 179–86 Barwick Test (Aus), 325 ‘advice to the world’, 330–31 foreseeability of harm, 326 knowledge, 326 actual/constructive knowledge, 328–29 novus actus interveniens, 327 reasonable reliance, 326–27, 327–28 special relationship between parties, 326 trust, 326–27 unrequested advice, 329–30 Caltex case, 38–40 compensation, 135 deceit, 34–35 denial of recovery, 46–47 distinction between liability in equity and common law action of deceit, 34–35 early misstatement decisions, 34–35 equitable damages, 135, 149–50 breach of equitable obligations, 152 exemplary damages, 157 fiduciary duty and, 148–49, 153–56 punitive awards, 157 equitable estoppel, 139, 150 equitable fraud, 139 Esanda case and, 319–21, 333–36 legal reasoning, 43–45 impact of Hedley Byrne, 29–32, 35–37, 47 land sales: deceit, 34–35 moral and legal fraud, 34–35 law prior to Hedley Byrne, 32–35 liability caps, 341 liability in equity: common law action of deceit distinguished, 34–35 limiting application of Hedley Byrne, 37 modern developments, 5–6, 341–43 ‘denial of recovery remains the rule’, 46–47 novel cases, 45 multifactorial approach of High Court, 5–6, 45–47, 341–43 no exclusionary rule, 42–43 obligation of conscience, 151 pro-defendant approach, 5, 163–64, 172–76 proportionate liability regimes, 24, 193, 199, 206–11, 214–17, 219 proximity and Hedley Byrne in, 40–44 provision of information: direct from advisor to plaintiff, 321 indirect from defendant to plaintiff (through a third party), 321 two- and three-party cases distinguished, 321 pure economic loss:

Index Caltex case, 38–40 duty of care in negligent misstatement, 320–21 flexible approach, 319 foreseeability, 341 increasingly restrictive approach, 5–6 reasonable foreseeability of harm, 161, 163 reliance, 319 self-protection in economic matters, 5 ‘special relationship’ and duty of care, 36–37 statutory regimes and tort remedies, 7, 22, 320 limiting liability for misleading or deceptive conduct, 170–89 strict liability statutory regime: misleading or deceptive conduct, 320, 337 trade practices, 317–18 three-party cases, 331–33 configurations, 331–32 Esanda case: confusion, 333, 336–37, 343–44 intentions, 336, 337–40 knowledge requirement, 340 probability of harm, 335 remoteness and, 340 negligent service provision, 332 trade practices legislation: impact of, 317–18 two-party cases, 325 ‘advice to the world’, 330–31 foreseeability of harm, 326 knowledge, 326 actual/constructive knowledge, 328–29 novus actus interveniens, 327 reasonable reliance, 326–27, 327–28 special relationship between parties, 326 trust, 326–27 unrequested advice, 329–30 uncertainty, 319–20 voluntarism: assumption of responsibility and, 321–24 suspicion in the courts, 322, 323–24 ‘vulnerability’, 320, 342 Australian Consumer Law: misleading or deceptive conduct, 170–72 apportioning fault, 186–88 contributory negligence, 186–88 mitigation, 188–89 reasonable defendant, 172–76 reasonable plaintiff, 176–78 remoteness and foreseeability of harm, 179–86 Barwick Test (Aus), 325 ‘advice to the world’, 330–31 foreseeability of harm, 326 knowledge, 326 actual/constructive knowledge, 328–29 novus actus interveniens, 327

361

reasonable reliance, 326–27, 327–28 special relationship between parties, 326 trust, 326–27 unrequested advice, 329–30 breach of confidence, 149–50 assessment for purposes of compensation, 153–57 Australia, 151 damages and, 137 compensatory jurisdiction and, 151–53 duty of confidence and, 151–53 England, 151 New Zealand, 152 Nocton v Ashburton, 146–50 breach of fiduciary duty: Australia, 146–50 breach of confidence and, 151–53, 157 equitable remedies and, 7, 22, 151–53 solicitor’s, 146–50 Caltex Oil (Australia) Pty Ltd v The Dredge ‘Willemstad’ (Aus): negligent misstatement and negligent conduct distinguished, 38–39 pure economic loss, 38–40 personal injury distinguished, 39–40 Canada, 261–62 assessment in breach of confidence cases, 154, 155 assumed or imposed obligations, 276–77 assumption of responsibility, 262–63, 276 defendant must intend the plaintiff to reply, 271–78 ‘end and aim’ rule compared, 288–89 knowledge, 274–75 plaintiff ’s reasonable reliance and, 271–78 requirement that the defendant play a role in duty of care, 271–72 voluntary nature, 277, 278 compensation for economic loss, 135, 149–50, 157 breach of duty of confidence, 152–53 fiduciary duties, 154–55 duty of care, 69, 96–97 ‘end and aim’ rule, 288–89 indeterminate liability and, 278–80 exclusionary rules, 282 growing pressure on compensation, 149–50 Hercules Management Ltd v Ernst & Young: background, 264–65 judgment, 265–66 reliance on Anns test, 266 intentional infliction of economic harm, 272–73 product defect loss, 285–87 reasonable reliance, 262–63, 283 relational economic loss, 284–85 relationship-based approach, 277, 288

362

Index

reliance, 280–81 rights-based approach to misrepresentation, 272–78, 288 structure defect loss, 285–87 three-stage Caparo test, 277 two-stage Anns test, 263–64, 266 negative impact, 287 see also two-stage Anns test Candler v Crane, Christmas and Co (Aus): duty of the defendant, 113–17 Hedley Byrne compared, 113–17 negligent and fraudulent misrepresentation distinguished, 129 Caparo Industries v Dickman (UK), 85–90, 229, 265 background, 85–86 Hedley Byrne reasoning and, 42–43, 46 principles of general application for pure economic loss, 45–46 proximity, 94, 241–42 reasonable foreseeability, 88 three-stage test, 227, 235 see also three-stage Caparo test causation, 22, 154–56, 160, 165, 168 mitigation and, 188–89 proving causation of damage, 235 reliance and, 281, 328 remoteness and foreseeability, 179–81, 183–86 co-defendant liability, 191–92, 201 allocation of liability, 192–93 joint and several liability, 193 right to contribution, 193–96 reimbursements, 195 proportionate liability, 196–97 subrogation, 197–98 insolvent wrongdoers, 191, 194–95, 196 common law developments, 3–4, 6–7 assumption of responsibility, 223–24, 230 Chandler v Cape Industries, 237 Customs and Excise Commissioners v Barclay’s Bank plc, 236–37 Hedley Byrne v Heller, 230–34 Smith v Eric S Bush, 238 Williams v Natural Life Health Foods, 234–37 breach of confidence, 154 consideration doctrine, 98–103 consumer protection and, 160–61, 173 contract law and misstatement, 124, 227 privity requirement, 286 corrective justice/rights theories, 224–27 Kantian framework of corrective justice, 228–29 neighbour principle, 225–26 damages and compensation distinguished, 137, 142, 154–55 duty of care, 169–70 duty to answer a call for help, 68–71

fraud, 143–44 equity and common law distinguished, 138, 152 joint and several liability, 193, 202–06, 212–14 negligent misstatement outwith tort and negligence, 224–27 no protectable right to financial well-being, 226, 229–30 strict liability statutory regimes and: Australia, 317–18 New Zealand, 312–13 subrogation, 197 uniqueness of misstatement in law of negligence, 227–30 compensation, 7, 10, 143 advisor liability and, 191–92 allocation of liability, 202, 205, 212, 217–18 measuring liability, 199–202 assessment in breach of confidence cases, 153–57 breach of fiduciary duty, 33–35, 147–48 damages distinguished, 137–38, 142, 154–55 equitable wrongs and, 147, 149, 150–52, 153 estoppel and, 150 fraud, 143–44 unreasonable expectation of, 109 compensatory jurisdiction: breach of confidence and, 151–53 development, 148–49 competition, 19, 121–22, 160 Competition and Consumer Act 2010 (Aus): Australian Consumer Law, 159 limitations on defendant liability, 170–89 see also Australian Consumer Law concurrent liability, 125, 305 negligent misrepresentation and, 264 tort and contract cases, 303 consent: assumption of responsibility and, 56–57, 87 law of negligence and, 103–04 law of negligence, 103–04 law of consents distinguished, 226 misstatement liabilities and, 12–13 no violation of rights, 87 rights-based approach to law of obligations, 55–57 consideration doctrine, 13, 98–101, 143 civil law and common law jurisdictions distinguished, 101–03 consumer protection provisions, 160, 181 Fair Trading Act 1986 (NZ), 317–18 strict liability, 7 tort law and, 6–7 Trade Practices Act 1974 (Aus), 318 contract, 13–14, 83–84, 106–07, 111–12, 117–20, 191–92

Index

363

advisor liability: advisee enforcement of induced contract, 198–211 advisee pursues a claim for misrepresentation, 211–17 joint and several liability, 202–05, 212–24 measure of liability, 199–202 proportionate liability, 206–07, 209–10, 214–17 assumed obligations, 95–98, 276 Australia: three-party cases, 331–33 broadening the scope, 120–21 consent, 104, 226–27 consideration doctrine and, 98–103 Derry v Peek and, 127–30 duty of care, 323 proportionate liability, 206–07, 209–10 enforcing representations, 143 equity law compared, 138–39, 142, 143 estoppel and, 146 Hedley Byrne and, 84, 92, 98–103 assumed obligations, 95 negligence plus model, 90 proximity, 93 implied contract, 151, 324 intended beneficiary requirement, 254 New Zealand: pre-contract negligent misrepresentation, 291–318 non-common law jurisdictions, 98–99 rejection in Hedley Byrne, 124–27 risk-allocation, 5, 324, 343 United States, 255–59 exclusionary rule for product defect, 286–87 see also assumed or imposed obligations; consent; pre-contractual misrepresentation contractual negotiation, 124 pre-contractual negotiations, 15 see also pre-contractual misrepresentation Contractual Remedies Act 1979 (NZ), 211–12, 293, 312 criticisms, 313–17 damages: ‘benefit of the bargain’ approach, 314–15 unfair burden, 315–16 harm, 313–14 innocent misrepresentation, 312–13 contractual warranties, 32, 159

breach of confidence, 137 compensation distinguished, 137–38, 142, 154–55 equitable damages, 135, 149–50 breach of equitable obligations, 152 exemplary damages, 157 fiduciary duty and, 148–49, 153–56 punitive awards, 157 fraud, 33 pre-contractual misrepresentation: measure of damages, 298–301, 307 recovery for financial loss: pre-Hedley Byrne, 293 unfair burden, 315–16 see also compensation deceit, 32, 127–28, 130, 143, 160, 168–69, 185 damages, 33, 314 direct and indirect loss, 181 intention and, 164, 166–67, 175 liability in equity distinguished, 34–35 Nocton v Ashburton, 146–50, 155 denial of recovery, 46–47 Derry v Peek (UK), 32, 293–94 consideration doctrine and, 118 contract, 128 fiduciary relationships, 128 fraud, 114, 128–30, 143–44, 234 general negligence, 33 liability in the tort of deceit, 127–28, 143–44, 234 privity doctrine and, 118 scope of liability, 113–14, 127–30 see also deceit; negligence disclaimers, 5, 10, 12, 94, 106, 177, 277, 338, 340 assumption of responsibility, 51–53, 62–64 effectiveness, 63 prevention of a duty of care, 62–64 reasonable reliance, 327 distribution of liabilities, see allocation of liability doctrine of consideration, see consideration doctrine Donoghue v Stevenson (UK), 31, 34, 127, 232–33 Anns compared, 267 assumption of responsibility and, 112, 272 Caparo compared, 86, 88 detrimental reliance, 89 Hercules compared, 268–69, 270 proximity, 38, 110, 243, 270, 277, 286 reasonable foreseeability, 88, 92, 94, 267

damages: advisee seeking damages from a contract partner: breach of contract, 198–211 reliance on incorrect information, for, 211–17 ‘benefit of the bargain’ approach, 314–15

economic loss: corrective justice/rights theories, 224–27 Kantian framework of corrective justice, 228–29 neighbour principle, 225–26 negligent misstatement outwith tort and negligence, 224–27

364

Index

no protectable right to financial well-being, 226, 229–30 personal injury distinguished, 30–31, 39–40, 88–89 uniqueness of misstatement in law of negligence, 227–30 see also pure economic loss employment references, 79–81 ‘end and aim’ rule, 247–48, 265, 269–70, 288–89 assumption of responsibility, 280–81 indeterminate liability and, 278–80 enforcing representations: contract law, 143 equity law, 142 Esanda Finance Corporation Ltd v Peat Marwick Hungerfords (Aus), 43, 319–21, 331 assumption of responsibility, 44 confusion arising from, 333, 336–37, 343 duty of care on the facts, 336 foreseeability of economic harm, 337 Hercules compared, 265 indeterminate liabilities, 340 proximity, 334 three-party cases, 331–36 estoppel, 14, 22, 145–46, 150, 165–66 contractual estoppel, 307 equitable estoppel, 7, 16, 139, 145, 150 compensation and, 156–57 promissory estoppel, 73, 227 proprietary estoppel, 73, 145, 150 representation of fact and, 143–44 equity: breach of confidence and, 151–53 common law action of deceit and liability in equity distinguished, 34–35 compelling the making good of representations, 140–42 compensatory jurisdiction and, 151–53 damages and, 136–37 ‘compensation’, 137 England, 151 New Zealand, 152 equitable fraud, 7, 32–33, 138–39 equitable remedies, 7, 138–39, 153–57, 158 Nocton v Ashburton, 146–50 pecuniary awards, 136–39 property rights, 144–46 mistake as to title, 145 reliance on a gift or promise, 145 relief, 153–57 tort, as: equitable jurisdiction and, 142–44 jurisdiction to make good representations, 139–42 legal history, 135–39 strict legal rights to property, 144–46 see also breach of equitable obligations exclusionary rule, 281–82, 287

abolition for recovery of pure economic loss in negligence, 281–82 Commonwealth countries, 282 Australia, 43 exceptions, 288 products liability and, 282, 286 recovery for the negligent interference with contractual relations, 282 recovery in negligence against non-privity parties, 282 relational loss and, 282–83, 284–85 United States: product defects, 286 express undertakings: assumption of responsibility and, 61–62 Fair Trading Act 1986 (NZ), 317–18 fairness, 22 assumption of responsibility and, 57–59 neoclassical tort law and, 257 fiduciary relationships, 154 breach of duties: Norton v Ashburton, 146–50 remedies, 7, 153–57 solicitors, 146–50 categorisation in context of contract, 118–19 see also advisor liability foreseeability, 161, 163, 179–86 Barwick test, 326 Caparo case, 88 causation, 179–81, 183–86 defendant liability under common law, 161–64 Donoghue v Stevenson, 88, 92, 94, 267 Esanda case, 337 fraud and, 166–67 liability, 94, 109, 161–64 pure economic loss, 341 reasonable reliance, 268–70, 278, 288–89 Hercules case, 268–70, 278, 288–89 fraud, 32–35, 114–15 advisor liability, 206, 215 compensation, 143–44, 294 concurrent liability, 206 contractual liability and, 127–30 damages, 33 Derry v Peek, 127–30 equitable fraud, 22, 32–33, 138–39 foreseeability and, 166–67 fraudulent inducements, 182 fraudulent misrepresentation: New Zealand, 292, 296 pre-contract, 293, 312–13 United States, 250 gross negligence and, 181–82 intentional fraud, 245 need for proof, 234 see also deceit fraudulent misrepresentation, 32, 167, 250, 293, 312

Index Hedley Byrne v Heller: assumption of responsibility: assumed or imposed obligations, 51–55 disclaimers, 62–64, 94 express undertakings, 61–62 objectivity and fairness, 57–59 objectivity and intention, 59–61 rights and undertakings, 55–57 binding nature of agreements and, 83 Candler case compared, 116 contract, 84, 92, 99–103, 117–21 assumed obligations, 95, 105 assumption of responsibility, 105–10 negligence plus model, 90 proximity, 93 rejection of approach, 124–27 consideration doctrine, 98–103 exclusionary rule and, 281–82 expansion of scope of liability, 113–14 identifying the action, 85–90 contract model, 84, 105–10 negligence model, 84, 90, 94 negligence plus model, 90 issues, 3–8 impact, 4 legal history, 10–12 concepts: consent and misstatement liabilities, 12–15 contract liabilities, 12–15 duties imposed by public courts and misstatement liabilities, 15–18 proximity relationship, 15–16 special relationship requirement, 15–16 tort liabilities, 15–18 voluntary nature of assumption of responsibility, 12–13 limited application of, 37 multi-factorial approach, 5–6, 45–47, 341–43 novel cases, 45–46 negligence law and, 83–84 duty of care: policy, 24 proximity, 239–40, 242–43 reasonable foreseeability, 239 skills and competence, 241 ‘special relationship’ between the parties, 240–41 three party cases, 241–42 neighbour principle, 91–94 non-common law jurisdictions, 98 proximity, 91–95, 239–40 knowledge and, 242 vulnerability and, 242–43 recovery, 283 tort v contract and, 83–84, 124 Heilbut, Symons & Co v Buckleton (UK), 291 binding nature of decision, 291, 294–95, 296, 303

365

limitation and, 294 pre-contractual misstatements, 295 contractual or fiduciary relationships, 295 innocent misrepresentation, 291, 295 liability of contracting parties, 296 warranty requirement, 296 Hercules Management Ltd v Ernst & Young (Can), 14, 261, 263–64, 273 background, 264–65 ‘end and aim’ rule, 269–70, 278–80, 288 foreseeable reasonable reliance, 268–70, 278, 288–89 harm, 268 indeterminate liability, 269–70, 275, 288 judgment, 265–66 reliance on Anns test, 266, 269 see also Canada; ‘end and aim’ rule indeterminate liability, 46, 278–80, 340 ‘end and aim’ rule, 269–70, 275, 288–89 innocent misrepresentation, 33, 172, 185, 207, 295 damages, 291–92, 295–96, 312–13 intention, 17, 57, 142, 164, 174–75, 253, 335 assumption of responsibility and, 20, 56–59, 271–78 duty and, 337–40 making good representations, 139–40 objectivity and, 59–61 whether pre-contract statement binding, 308 see also deceit joint liability regimes, 24, 192 abolition in Australia, 341 allocation of liability, 193–94, 195, 202–05, 212–14 mutual right to contribution, 202–03, 209, 212–13, 216–17, 218–19 subrogation and, 197 liability, 110, 112 assumption of responsibility and, 84, 97–98 contract and, 84 defendant liability under common law: reasonable foreseeability, 161–64 defendant liability under statue, 159–61 expansion, 113–14 limiting factors: contract, under, 114, 116–18 fiduciary relationship derived from contract, under, 114–15, 118 fraud, 114 non-contractual ‘special’ relationship, 114 proximity and, 117 reasonable foreseeability, 161–64 negligence and, 88 negligence plus model, 84, 90 proximity and, 84, 91, 93–94, 117 reasonable foreseeability, 94, 109, 161–64

366

Index

see also advisory liability; indeterminate liability liberal-economic approach, 113, 120–24 limitations: Australian Consumer Law, 159, 170–89 common law, 161–70 contractual limitations, 125–27 defendant liability, 159–90 duty of care, 109 equitable wrongs, 149 law of negligent misstatement: contributory negligence, 167–68 mitigation: reasonable steps to minimise loss, 158–70 reasonable defendant, 163–64 reasonable foreseeability, 161–63 remoteness and, 166–67 reasonable plaintiff, 164–66 statutory law (Aus), 159, 170–72, 189–90 apportioning fault, 186–88 contributory negligence, 186–88 mitigation, 188–89 reasonable defendant, 172–76 reasonable plaintiff, 176–78 remoteness and foreseeability of harm, 179–86 tort law, 226 markets, 121–23 liberal democratic societies, 121 neo-classical economics, 121–22 practical welfare economics, 122 social and economic policy, 121–22, 126–27 Misrepresentation Act 1967, 112, 126, 127 misrepresentations: fact or intention, 142 financial position of a person, 140 inducements to a prospective suitor to secure a favourable marriage, 140 pre-contract negotiations, 293–95 contractual or fiduciary relationships, 295 contractual requirements for liability, 308–09 innocent misrepresentation, 295 law reform (NZ), 312–18 legal history, 297–306 tort claims, 307 tort requirements for liability, 309–11 prior claims to property, 139–40 modern developments: Australia: multifactorial approach of High Court, 5–6, 45–47, 341–43 statutory reform, 317–18 New Zealand: statutory reform, 317–18 United States: foreseeability replacing privity as standard for liability, 246–48

mutual right to contribution, 202–03, 209, 212–13, 216–17, 218–19 negligence, 15–16, 18, 21, 32, 223–24, 272 Anns test, 267 assumption of responsibility and, 103–09, 232–38 contract model and, 107–08 contributory negligence, 72, 167–68, 186–88, 327–28 duty of care: employment references, 79–81 navigational lights cases, 73 police informers, 78–79 railway gate cases, 71–73 rescuers and rescuees, 68–71 safety regulation, 76–78 solicitors and opposing parties, 75–76 solicitors and potential beneficiaries, 75 valuers and third parties, 74–75 Hedley Byrne, 232–34, 239–43 misstatement and, 224–27 general negligence and, 33, 91–94, 112 unique head of negligence, as a, 227–30 professional negligence, 167–68, 186–88, 305–06 proximity, 51, 91–94 see also Donoghue v Stevenson neighbour principle, see proximity New Zealand: assessment in breach of confidence cases, 154–57 ‘benefit of the bargain’ approach, 314–15 breach of equitable obligations: compensation, 152 concerns surrounding assumption of responsibility, 95 damages: ‘benefit of the bargain’ approach, 314–15 unfair burden, 315–16 growing pressure on compensation, 149–50 harm: damages, 313–14 innocent misrepresentation: damages, 312–13 ‘pre-contract’ negligent misrepresentation, 291–93, 312–18 statutory regimes and tort remedies, 7, 312–18 Contractual Remedies Act 1979, 312–13 criticisms, 313–17 Fair Trading Act 1986, 317–18 no-liability rule: exceptions, 42 pure economic loss: provision of services, 42 Norton v Ashburton (UK), 146–47 development of the compensatory jurisdiction, 148–49 equitable compensation and, 147–48

Index equitable estoppel, 150 growing pressure on compensation, 149–50 significance for tort law, 147 obligations, 13, 22–23 assumed or imposed, 83, 93, 95–98, 107, 276–77 common law, 110 tort law, 95, 107, 229 assumption of responsibility and, 50, 51–52, 54, 95–98, 238, 277 voluntary assumption, 55, 82 express undertakings and, 61–62, 105 intention to assume, 59–61 objective test, 57 rights and undertakings, 55–57 certainty, 158 common law, 110 consent and, 103–04, 106 contract and, 95, 105, 203, 205, 218, 226–27, 256, 276, 305–06 defendant’s obligation, 272–73 disclaimers and, 63 equity and, 136, 149 breach of confidence, 151–52 implied, 106 intention to assume: assumption of responsibility, 59–61 joint or several liability, 193, 196–97 negligence actions and, 94 non-voluntary nature, 64, 66–67 proximity and, 71, 91, 94, 231, 238 rescue, 71 rights-based approach: assumption of responsibility, 55 self-reliance and, 158 statutory obligations, 22, 276 parol evidence rule, 308–09 personal injury, 88, 112–13 economic loss distinguished, 30–31, 39–40, 88–89 reasonable foreseeability, 91–92 third-party liability, 247 pre-contractual misrepresentation, 293–95 contractual or fiduciary relationships, 295 contractual requirements for liability, 308–09 innocent misrepresentation, 295 law reform (NZ), 312–18 legal history: early cases, 297–98 measure of damages, 298–301 quality of reasoning, 301–03 liability in contract, 306 liability in tort, 303–06 liability of contracting parties, 296 statutory remedies, 7 tort claims, advantages of:

367

limitation periods, 307 measure of damages, 307 tort requirements for liability, 309–11 private ordering, 12–15, 19, 255 primacy over public regulation, 258 product defect and, 286 product or structural defect loss, 285–87 exclusionary rule, 286 latent defect, 286 professional liability: rescuers and rescuees, 68–71 solicitor’s breach of fiduciary duty, 146–50 solicitors and opposing parties, 75–76 solicitors and potential beneficiaries, 75 valuers and third parties, 74–75 see also advisor liability property, 91–92, 110 estoppel, 150 falsification of representations, 144–46 misrepresentations and prior claims to property, 139–40 non-disclosure of facts, 144, 145–46 relief in equity, 137, 145–46 mistake as to title, 145–46 reliance on a gift or promise, 145, 146 strict legal rights to, 144–46 see also equity proportionate liability regimes, 24, 193, 199 Australia, 206–11 proximity, 15–16 abandonment of, 44 absence of, 43 assumed and imposed obligations, 93 assumption of responsibility and, 41–42, 44, 53, 65, 67–68 employment references, 79–81 navigational lights cases, 73 police informers, 78–79 railway gate cases, 71–73 rescuers and rescuees, 68–71 safety regulation, 76–78 solicitors and opposing parties, 75–76 solicitors and potential beneficiaries, 75 valuers and third parties, 74–75 Donoghue v Stevenson, 38, 110, 243, 270, 277, 286 extended use, 41–42 foreseeability and, 91–92 policy and, 93 pure economic loss and, 40–44 relationship ‘akin to contract’, 42 reliance and, 41–42 pure economic loss: autonomy of the individual, 46 Caltex case, 38–40 Hedley Byrne and, 40–44 indeterminacy of liability, 46 knowledge of the risk, 46

368

Index

negligence liability for, 5 no-liability rule: exceptions, 42 proximity and, 40–44 reasonable foreseeability of loss, 46 scope of liability, 42–43 vulnerability to risk, 46 see also economic loss relational economic loss, 265, 284–85, 287–88 exclusionary rule, 282–83 relationship ‘akin to contract’, 42, 45, 322, 333 valuer and insurer, 44 reliance, 8, 280–81, 268–69 absence of, 43 assumption of responsibility distinguished, 18, 42–43, 45, 262–63 detrimental reliance and, 89, 97–98 establishing proximity, 44 Barwick test, 326–27, 327–28 foreseeable reasonable reliance, 268–70, 278, 288–89 Hercules case, 268–70, 278, 288–89 incorrect information and, 211–17 plaintiff ’s, 271–78 reasonable reliance test, 31–32 unilateral reliance, 283 remedies, 33, 307 assessment, 163, 179 breach of fiduciary duties, 7 compensation, 149, 151 consumer protection, 6–7, 179–80, 188–89 damages, 142, 310, 311 contractual damages, 151 equitable fraud, 7 equitable remedies, 7, 33, 135, 138–39, 146–48, 154–55, 158 statutory remedies, 7, 179–80, 188–89, 320 breach of contract, 312 remoteness, 22, 39, 154–55, 172, 307, 321, 328, 329 foreseeability of harm and, 166–67, 179–86 relational economic loss, 282–83, 284–85 see also indeterminate liability representation of intentions, 139, 142 see also intention rescission, 33, 35, 140, 147, 150, 154, 295 rescuers and rescuees, 68–71 safety regulation, 76–78 several liability regimes: allocation of liability, 193–95, 202–05, 212–14 solidarity liability, see joint liability regimes; several liability regimes solicitors: breach of fiduciary duty, 146–50 opposing parties and, 75–76 potential beneficiaries and, 75

special relationship, 15–16, 240, 273 assumption of responsibility and, 231, 235, 292 duty of care, 36–37, 43, 296, 354 imposition of, 54, 63, 277–78 non-contractual special relationships, 114, 128 pre-contract relationships, 292, 296 police informers, 78–79 reasonable reliance, 333–34 statutory remedies, 7, 179–80, 188–89, 320 breach of contract, 312 strict liability statutory regime (Aus): misleading or deceptive conduct, 320, 337 trade practices, 317–18 subrogation: advisor liability, 197–98 extinguished rights, 197–98 subsisting rights, 197 third-parties, 184, 247, 296 three-stage Caparo test for duty of care: Chandler v Cape Industries, 237 Customs and Excise Commissioners v Barclay’s Bank plc, 236–37 Hedley Byrne v Heller, 230–34, 239 proximity, 239–40 knowledge and, 242 vulnerability and, 242–43 policy, 240 reasonable foreseeability, 239 skills or competence, 240–41 special relationship between parties, 240 Smith v Eric S Bush, 238 Williams v Natural Life Health Foods, 234–37 see also Caparo Industries v Dickman two-stage Anns test: Donoghue v Stevenson distinguished, 267 ‘end and aim’ rule, 269–70 foreseeable harm, 267, 268 reasonable reliance, 268–69 impact on misrepresentation cases, 267–68 indeterminate liability and, 269 proximity, 267 foreseeability and, 268 plaintiff ’s reliance and, 270 reasonable reliance, 268–69 reasonable reliance, 268–69 known and foreseeable distinguished, 270 using policy arguments to refute duty of care, 267 see also Anns v London Merton London Borough; Canada tort law, 4–7, 224–25, 227–30, 238 assumed obligations, 95, 102, 238 deceit, 127–28, 143–44, 234 duties in contract and, 303–06 equity as, 135–39

Index imposed obligations, 6–7, 102, 238 law reform (NZ), 312–17, 317–18 pre-contractual misrepresentation, 292–93, 303–06 advantages of tort claims, 307–08 measure of damages, 298–301 requirements for liability, 308–11 primary rights and, 19 qualified rights to reasonable care, 19–20 statutory regimes and, 7, 22, 313, 317–18, 320 limiting liability for misleading or deceptive conduct, 170–89 see also deceit; negligence uncertainty in law, 7–8, 20–21, 25 equity and, 142–43, 156 legacy of Esanda, 320, 324–25 confusion in courts, 336–37 United States: accountability liability cases, 250–51 classical legal thought: law and policies applicable to negligent misstatement, 255–56 developments in the law of misstatement, 246 expansion of liability, 255–57 foreseeability, 246–48, 249 knowledge and, 254–55 intent and knowledge requirement, 254 legal history: foreseeability replacing privity as standard for liability, 246–48 lack of privity barring action, 246 Ultramares rule, 247–48

369 linking conduct between purveyor of information and relying third party, 253 neoclassical law, 256–57 contract relationships and tort principles, 258 fairness, 257 private ordering, 12–15, 19, 255 primacy over public regulation, 258 product defect and, 286 privity, 246–48, 252, 258 reasonable duty of care test, 249 Restatement (Second) of Torts, 245–46 adoption, 250 assumption of responsibility, 324 controversy over scope of application, 253–54 restrictive interpretations of, 258–59 revision, 250–51 Restatement (Third) of Torts: Liability for Economic Harm, 251–52 assumption of responsibility, 324 scope of liability, 255–57 controversies over, 253–54, 257 surveyor liability, 251 three-prong tests: elements of negligent misrepresentation cause of action, 252 sufficiency of relationship to satisfy first element of cause of action, 252

valuers and third parties, 74–75 words and deeds, 30, 40–41, 227–28