162 SYDNEY LAW REVIEW

to them in deciding the question. And this is so because of the two traditional
safeguards, namely, the requirement in EvanP3 that the misconduct be "grave
and weighty" and that there must be "injury to health" under the principle
in R~sse11,7~to which the courts are bound to give effect.

C . C . BRANSON, Case Editor-Third Year Student

LIABILITY IN NEGLIGENCE FOR STATEMENT

HEDLEY BYRNE & CO. LTD. v. HELLER & PARTNERS LTD?

Mr. Foster for the respondents has given your Lordships three reasons
why the appellants should not recover. The first is founded upon a
general statement of the law which, if true, is of immense effect. Its
hypothesis is that there is no general duty not to make careless statements.
No one challenges that hypothesis. There is no duty to be careful in speech
as there is a duty to be honest in speech. 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
. ~ la in tiff cannot therefore recover for financial
Donoghue v. S t e v e n ~ o n A
loss caused by a careless statement unless he can show that the maker
of the statement was under a special duty to him to be careful. Mr.
Foster submits that this special duty must be brought under one of three
categories. It must be contractual; or it must be fiduciary; or it must
arise from the relationship of proximity and the financial loss must flow
from physical damage done to the person or the property of the plaintiff.
The law is now settled, Mr. Foster submits, and these three categories
are exhaustive. It was so decided in Candler v. Crane, Christmas & Co?
and that decision, Mr. Foster submits, is right in principle and in
accordance with earlier authorities.*
This extract from the judgment of Lord Devlin sets out the issues involved
in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd.5 The facts of the case
were :
The appellants were advertising agents, who had placed substantial
forward advertising orders for a company on terms by which they, the
appellants, were personally liable for the cost of the orders. They asked their
bankers to enquire into the company's financial stability, and their bankers
made enquiries of the respondents who were the company's bankers. The
respondents gave favourable references but stipulated that these were "without
responsibility". In reliance on these references the appellants placed orders
which resulted in a loss of &17,000. They brought an action against the
respondents for damages for negligence.
Both the trial judge, McNair, J., and the House of Lords found for the

"O p .
74
cit. n. 59.
Op. cit. n. 58.
'(1963) 3 W.L.R. 101.
(1932) A.C. 562.
(1951) 2 K.B. 164.
' O p . cit. n. 1 at 134 per Lord Devlin.
(1963) 3 W.L.R. 101; (1963) 2 All E.R. 575; (1964) A.C. 465.
 NEGLIGENT STATEMENTS 163

respondentss on the ground that there was no duty of care, but they miched
this conclusion on different grounds.
McNair, J. said: "I am accordingly driven to the conclusion by authority
binding upon me that no such action lies in the absence of contract or
fiduciary relationship.""
The authorities which McNair, J. had ~ a r t i c u l a r lin~ mind were Le Lievre
, ~ Candler v. Crane, Christmas & Co? He did say, however, that
v. G o ~ l d and
assuming there was a duty "I have no hesitation in holding that Mr. Heller
.
was guilty of negligence. . ."lo
In the House of Lords these two cases were not followed, and in fact
Candler v. Crane, Christmas & Co. was expressly overruled.ll Le Lievre V.
G o d d was felt to have been correctly decided on its facts.12 Likewise also
the House of Lords did not consider the question of negligence. The case was
argued and decided on the question of the existence of a duty of care.
Ultimately, all their Lordships relied on the disclaimer of responsibility made
by the respondents when giving the references to negative the existence of a
duty of care in the circumstances of the case.
The unanimity disappeared, however, when the respondents' liability in
negligence was considered by their Lordships on the hypothetical assumption
that it had not expressly disclaimed liability. Lord Reid said:
It appears that bankers now commonly give references with regard to
their customers as part of their business. I do not know how far their
customers generally permit them to disclose their affairs, but, even with
permission, it cannot always be easy for a banker to reconcile his duty
to his customer with his desire to give a fairly balanced reply to an
inquiry. And inquirers can hardly expect a full and objective statement
of opinion or accurate factual information such as skilled men would be
expected to give in reply to other kinds of inquiry. 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.13
Lord Morris, after referring to the judgment of Pearson, L.J. in the Court
of Appeal and to Robinson v. National Bank of Scotland14 and Parsons v.
Barclay & Co. Ltd.,l5 said:
There is much to be said, therefore, for the view that if a banker gives a
reference in the form of a brief expression of opinion in regard to credit
worthiness he does not accept, and there is not expected from him, any
higher duty than that of giving an honest answer16
and Lord Hodson, after referring to the same cases, spoke in similar terms.17
Lord Devlin did not specifically mention the point, but from the tenor
of his judgment1' it could be inferred that he would have fohnd a duty of
care owed by the bank.

'As did the Court of Appeal.

'As reported in the House of Lords report (1?63) 3 W.L.R. at 105.
"1893) 1 Q.B. 491. (1951) 2 K.B. 164.
''As reported in the House of Lords report (1963) 3 W.L.R. at 104.
*Lord Reid at 109; Lord Hodson at 129; Lord Pearce at 154; and impliedly in the
other iudements.
"LOI-2Reid at 110; Lord Devlin at 138; Lord Pearce a3t151.
" Op. cit. n. 1 at 111.
l4 (1916) S.C. (H.L.) 154.
l5 (1910) 103 L.T. 196.
''Op. cit. n. 1 at 125.
"Id. at 133.
= I d . at 149.
 NEGLIGENT STATEMENTS 165

How does a plaintiff show the requisite proximity to succeed? The

House spoke of this as a "special relationship" and to establish this, Lord
Reid could 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 is
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 irlquirer was relying
on him".24
To reach this conclusion Lord Reid relied on Viscount Haldane's judgments
in Nocton v. Lord Ashburtonz5 and Robinson v. National Bank of Scotland
Ltd.,26 and especially on the latter case where Lord Haldane said:
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.
The whole of the doctrine as to fiduciary relationships, as to the duty of
care arising from implied as well as express contracts, as to the duty of
care arising from other special relationships which the court 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 rec~gnisingthat the duty of care may be established when
such cases really occur.28
This passage makes it clear that Lord Haldane did not think that a duty
to take care must be limited to cases of fiduciary relationship in the narrow
sense of relationships which had been recognised by the Court of Chancery
as being of a fiduciary character. All their Lordships come to this conclusion
after citing passages from Lord Haldane's judgments in these two cases. NO
mention is made of some passages in these judgments that seem to conflict
with the above view of Derry v. Peek.29
Lord Morris formulated the "special relationship" thus:
I consider that it follows and that it should now be regarded as settled
that if someone possessed of a special skill undertakes, quite irrespective of
contract, to apply that skill for the assistance of another person who relies
upon such skill, a duty of care will arise. The fact that the service is to
be given by means of or by the instrumentality of words can make no
difference. Furthermore, if in a sphere in which a person is so placed
that others could reasonably rely upon his judgment or his skill or upon his
ability to make careful enquiry 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.30
Lord Pearce, after discussing the liability of persons in a contractual or
fiduciary relationship, went on to say:
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.31
Was there such a special relationship in the present case . . .? The
answer to that question depends on the circumstances of the transaction.

=Id. at 109.
zs (1914) A.C. 932.
28 (1916) S.C. (H.L.) 154.
27 (1889) 14 App. Cas. 337.
" Op. cit. n. 1 at 109.
=See, for example, the passages cited in "Negligence and Liability for Statements"
reprinted by courtesy of The Law Journal, England in (1964) 5 Australian Lawyer 59
at 64.
cit. n. 1 at 124. "Id. at 154.
I 166 SYDNEY LAW REVIEW

If, for instance, they disclosed a casual social approach to the inquiry,
no such special relationship or duty of care would be assumed (see Fish
v. Kelly32). 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. . . . A most important circumstance is the form of the
inquiry and of the answer?
What else can we say of these special relationships? It seems significant that
Lords Hodson and Pearce discuss in their judgments Shiells v. Blackb~rne,3~
Gladwell v. StegaEP5 and Wilkinson v. C ~ v e r d a E eof~ ~which Lord Pearce says:
In those cases there was no dichotomy between negligence in act and in
word, nor between physical and economic loss. The basis underlying them
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. In terms of proximity one might
say that they are in ~articularlyclose ~ r o x i m i tto~ those who, as they
know, are relying on their skill and care although the proximity is not
c~ntractual.~~
Lord Morris spoke of persons ccpossessed of a special Possibly
the cases where a person exercising a common calling has been held
liable inspired this line of reasoning, but the number of persons who exercise
a common calling has been severely limited and this would not seem to offer
scope for development.39
Lord Devlin was prepared to accept any of the formulations of the special
relationship, although he preferred a relationship regarded as "equivalent to
contract". In this context he felt that De La Bere v. Pearson Ltd.40 was better
regarded as a case in tort than in contract. No doubt the search for a
consideration severely taxed the judges in many such cases.41 Most probably
:he confusion in the past has stemmed from the development of simple contract
out of the old tort action on the case.
Most of the judgments refer to the "casual approach" situation in which
a duty of care would not arise. But where it is apparent to a reasonable person
that the inquirer is reasonably relying on the informant's skill, judgment or
careful inquiry, and the informant answers or advises with this knowledge, a
duty of care will arise towards the inquirer. There can be no obligation on
him to answer and thus "consummate" the relationship, but if he chooses so
to do then he will be liable for negligent misstatement.
I t seems, therefore, that Lord Pearce's conclusion that a duty will
normally only arise when the representation concerns "a business or pro-
fessional" transaction would be in keeping with the feeling of the House. The
person sought to be made liable must be a person possessed of some special
skill or ability which he has consented to make available, by means of
information or advice, to an enquirer who could, on an objective basis,
reasonably be expected to place reliance on it. Further the information or

(1864) 17 C.B.N.S. 194. " Op. cit. n. 1 at 154-5.

a (1789) 1 H. B1. 158. (1839) 5 Bing. N.C. 733.
(1793) 1 ESP. 75. "At 153-4.
%At 124.
:See Groom v. Crocker (1939) 1 K.B. 194.
(1908) 1 K.B. 280. Probably this case is an illustration of judicial attempts to
"stretch" the existing law of contract to provide a remedy in a field in which it was
thought Derry v. Peek precluded a remedy based on tort.
USee also Lord Reid at 114 where he refers to Lord Haldane's judgment in Robinson
v. National Bank of Scotland and draws attention to the fact that by Scots law con-
sideration is not necessary for a simple contract.
 NEGLIGENT STATEMENTS 167

advice may be relied on by "another person who, as he knows or should know,

will place reliance upon it".42 This was the situation in which Hellers found
themselves for they did not know, when they gave the reference, for whose
benefit it was being given, but it was a reasonable inference that they realised
it would be passed on to a customer of the inquiring Bank.
What are the implications of this? Their Lordships clearly discard the
construction of Derry v. Peek taken by the Court of Appeal in Candler's Case,
and generally felt to have been the law at the time. Derry v. Peek was treated
as a case resting solely on fraud, and did not touch on the question of negligent
misrepresentation. Lord Devlin emphatically stated "All that is certain is that
on this point (that is negligent misrepresentation) the House laid down no
law at
Candler's Case no doubt stated the law more narrowly than the weight of
judicial dicta at that time justified.44 The law had usually been stated in terms
that there was no general duty to be careful in word as distinct from deed, but
there were special situations in which a duty would arise including those in
which the duty arose out of a contractual or fiduciary relationship. But never-
theless the majority judges in Candler's Case were probably justified on the
materials then available to them in feeling they were stating the practical
effect of the law when they limited recovery to situations in which a duty of
care arose out of a contractual or fiduciary relationship; for though the law
had been framed in terms of "special relationships" it was difficult to see how
any further such relationships could be found without contravening Derry v.
Peek.45 There the plaintiff invested money in a company on the faith of a
prospectus containing a false statement negligently inserted in it by the
defendant directors. The statement in the prospectus was intended to be relied
on by the category of persons of whom the plaintiff was one and it is difficult
to imagine a more "proximate" relationship.
The Court of Appeal found for the plaintiff on the ground that proven
negligence here amounted to deceit. The House of Lords held that it did not,
without referring at all to a possible cause of action in negligence. When it is
considered that there was a finding of negligence by a Judge not a jury it
is easy to see why subsequently it was assumed that no cause of action existed
in such a situation.
However, in the Hedley Byrne Case the Lords regarded Derry v. Peek as
a case pleaded, argued and decided solely on the ground of fraud. In so
doing they drew support from Lord Haldane and Lord Shaw in Nocton v.
Ashburton. This completely overturned the construction previously placed
on Derry v. Peek and rendered redundant the Directors' Liability Act and its
successors, or at least gives a further remedy to investors in addition to their
already extensive range of remedies against directors and promoters under
the 1961 Companies Act. This piece of judicial legislation was strongly resisted
by Cardozo, C.J. in the United States when in Ultramares Corporation v.

:Per Lord Morris 124. "At 137.

See the previous line of cases in the Court of Appeal: Le Lievre v. Gould (1893)
1 Q.B. 491; Angus v. Clifford (1891) 2 Ch. 449; Low v. Bouverie (1891) 3 Ch. 82;
Bishop v. Balkis Consolidated Co. (1890) 25 Q.B.D. 512; Glasier v. Rolls (1889) 42 Ch.
D.436.
"The following efforts to circumscribe Derry v. Peek may be noted:
(1) Importing a contract as in De La Bere v. Pearson Ltd. (1908) 1 K.B. 280.
Note also Scrutton, J. in Everett v. Grifiths (1920) 3 K.B. 163;
(2) extending the concept of fiduciary relationship as in Woods v. Illartins Bank
Ltd. (1958) 3 All E.R. 166;
(3) by relying on the ill-defined distinction between statement and other conduct.
This seems to be the basis of the Count of Appeal's finding for the plaintiff
in Sharp v. Avery (1938) 4 All E.R. 85.
168 SYDNEY LAW REVIEW

Touche46 he expressed the view that such an extension of liability was a matter
for statutory enactment.
Whether the decision is felt to be good or bad its weakness is that it
does not give a precise test for establishing a duty of care in statement. Yet
their Lordships do seem to be aware of this ~ r o b l e mfor they refer to regard
their decision as laying down a broad framework within which a la in tiff
may be able to place himself in a particular fact situation rather than as
setting a precise test for all situations. Lord Pearce seemed to be unusually
irank when he said:
How wide the sphere of the duty of care in negligence is to be laid
depends ultimately upon the court's assessment of the demands of society
for protection from the carelessness of others. Economic protection has
lagged behind protection in physical matters where there is injury to
person and property.47
The Lords can see no reason for a distinction between ~ h ~ s i c ainjuryl
and financial loss both stemming from negligent statement.48 This causes no
problems for in each case the real issue is the requisite degree of proximity
between the plaintiff and the defendant. Each factual situation will involve a
complex determination by the Court and it is submitted that recognised cate-
gories of "proximate" or "special" relationships will gradually develop. Two
such categories presently recognised are the contractual and fiduciary relation-
ship, while it appears that a banker does not owe a duty of care when he
gives a brief expression of opinion of a customer's credit worthiness, and, of
course, a fortiori if he disclaims liability when giving the reference. Difficulties
will always arise when a lai in tiff attempts to establish a new category outside
those already recognised.
Without further decisions of high authority in this field of the law it is
impossible to say what response the general propositions enunciated by their
Lordships will find. The trend clearly favoured by the House is that the
development of this area of the law should parallel that of negligence in deed
subsequent to Donoghue v. Stevenson. In both cases an all embracing test is
not, and probably could not be, laid down for the existence of a duty of care.
Remembering Lord Macmillan's famous statement, "The categories of negligence
are never closed",49 this is a reasonable conclusion.

Future Development
It is clear that the professional person is going to be ~ r i n c i p a l laffected
~
by the decision. The field of finance now seems to be open to attack from
dissatisfied investors and the courts will be faced with the ~ r o b l e mof deter-
mining what in fact induced the plaintiff to invest just as the House of
Lords had to face this problem in Derry v. Peek. Accountants and auditors
will certainly owe a duty to those persons who may reasonably be expected to
view the accounts and statements prepared by them. Some public accountants
are not now furnishing an auditor's report for the accounts of Exempt Pro-
prietary Companies whose accounts do not have to be filed at the office of the
Registrar of Companies. Likewise surveyors, and even the builder in Otto
v. B o l t s r ~ would
, ~ ~ seem to be liable in an action brought by third parties.51

(1931) 174 N.E. 441. "At 152.

"Besides the cases cited in this review, the relevance of the type of damage suffered
as a result of mis-statement has also been considered in Australzan Steam Shipping Co.
v Devitt (1917) 33 T.L.R. 178; Humphery v. Bowers (1929) 45 T.L.R. 178; Old Gates
Estates v. Toplis cutd Harding and Russell (1939) 3 All E.R. 209.
@ (1932) A.C. at 639. "Otto v. Bolton & Norris (1936) 1 All E.R. 960.
61As ,to the liability of builders note the curious result now reached in Sharp v .
 NEGLIGENT STATEMENTS 169

It will be interesting to see if a duty of care in negligence is owed by

barristers to litigants. Solicitors also might find themselves challenged by
disappointed "beneficiaries" under a will, but whether such persons can bring
themselves within the language of the formulations used by their Lordships
remains to be seen.
Whatever the categories of persons who are shown to owe a duty of care,
the problem becomes more and more complex the further apart or less
proximate the two parties are. Consider the position posed by Denning, L.J.
in Candler v. Crane, Christmas & Co. of a marine hydrographer whose negli-
gence in preparing a chart leads to the loss of a ship.52 The shipping company's
loss is financial but flows from damage to its property and assuming the damage
not to be too remote then it would have been recoverable under the old law.
But what of the insurance company which pays out for the loss? It now seems
to have an action against the hydrographer even though the payment was the
result of the risk insured against. So, of course, the hydrographer must either
disclaim liability when preparing the chart, an action which would discourage
business, or take out a substantial insurance policy himself. The result seems
to be more business for insurance companies.

I . M. FITZGERALD, Case Editor-Third Year Student.

A RECONCILIATION PROBLEM IN REMOTENESS

HUGHES V. LORD ADVOCATE' and DOUGHTY v. TURNER

MANUFACTURING CO. LTD.2

I The Background
The Privy Council in Ozlerseas Tankship (U.K.) Ltd. v. Morts Dock and
Engineering Co. Ltd.3 laid down that foreseeability is the test for determining
the issue of remoteness of damage when it arises in an action for negligence:
6L
. . . it is the foresight of the reasonable man which alone can determine
r e s p ~ n s i b i l i t ~ .I"t~ was stressed in the judgment of their lordships that the
questions of duty, breach and damage must be dealt with in relation to each
head of damage claimed separately: To hold one "liable for consequences
however unforeseeable of a careless act, if, but only if, he is at the same time
liable for some other damage however trivial, appears to be neither logical
nor j ~ s t " . ~ The question of liability for some other damage is, therefore,
irrelevant.
The Board did not, however, suggest that the exact consequences which
occurred had to be shown to be foreseeable, since they recognized that no
one "can be assumed to know all the processes of n a t ~ r e " .Nor ~ did the case
itself determine exactly how much of what occurs the law requires to be

E. T . Sweeting & Son Ltd. (1963) 1 W.L.R. 665. A builder is liable for his negligence
to a person who comes to live in the house after it is built-provided he is not a spec.
builder. There is a duty on a man who is less in a position to do harm because h e is
likely to be under independent supervision but no duty on the spec. builder who is
under no supervision at all because the latter completes and sells the house.
The anomalous position of the spec. builder flows from the existing authority of
Bottomley v. Bannister (1932) 1 K.B. 458 and Otto v. Bolton & Norris, supra, as well as
the House of Lords decision in Cavalier v. Pope (1906) A.C. 428.
62 0 p . cit. n. 3 at 183.

(1963) A.C. 837. (1964) 1 All E.R. 98.

(1961) A.C. 389. At 424.
At 425. At 426.