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Hedley Byrne in the House of Lords: an interpretation1
Published online by Cambridge University Press: 02 January 2018
Extract
The House of Lords has now handed down decisions in six cases which have involved extended discussions of the scope of liability to compensate another for pure economic loss under the Hedley Byme principle. It seems reasonable to suppose that we can now arrive, on the basis of those decisions, at some conclusions as to when and why such liability arises. In this article we attempt to amve at such conclusions. In so doing we avoid using the usual terminology- ‘duty of care’, ‘proximity’, ‘just and reasonable’, ‘policy’, ‘reliance’, ‘assumption of responsibility’, ‘equivalent to contract’, even ‘negligence’-which an analysis of the scope and rationale of liability under Hedley Byme would be expected to employ.
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- Research Article
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- Copyright © Society of Legal Scholars 1995
Footnotes
1
The authors would like to acknowledge the help they have received from various people in writing this article. Our former tort law tutor, Mr. John Davies, provided us with countless valuable insights into the nature of tort liability over the years and made many useful comments on a previous draft of this article. Steve Smith, Ewan McKendrick and Matthew Judd also read a previous draft of this article and provided constructive advice as to how it might be improved. A summary of this article was presented to the Oxford Common Law Discussion Group; the final form of this article owes much to the group's criticisms of that summary.
References
2. For the purposes of this article someone suffers ‘pure economic loss’ when he or she suffers financial losses which do not result from his or her person or property being harmed or when he or she fails to receive a financial benefit which, but for an intervening event, he or she would otherwise have received.
3. The expression the Hedley Byrne principle' (and all similar expressions) should be taken as referring to the principle which underpinned the House of Lords' decision in Hedley Byrne v Heller & Partners [1964] AC 465 as to whether the defendants in that case could be held liable to the plaintiffs for the pure economic loss suffered by those plaintiffs.
4. Cf the remarks of Brennan J in San Sebastian Pty Ltd v The Minister (1986) 162 CLR 340, 367–369. Also Smith v Eric S Bush [1990] 1 AC 831, 862C (Lord Griffiths); Caparo industries plc v Dickman [1990] 2 AC 605, 628G (Lord Roskill), 633D (Lord Oliver). Barker, ‘Unreliable assumptions in the modern law of negligence’ 109 LQR 461 (1993) provides an excellent summary of the various interpretations the concepts of ‘reliance’ and ‘voluntary assumption of responsibility’ are able (and are made) to bear.
5. Donoghue v Stevenson [1932] AC 562.
6. Cf Hedley Byrne v Heller & Partners [1964] AC 465, 482: ‘The appellants’ [plaintiffs'] first argument was based on Donoghue v Stevenson. That is a very important decision, but I do not think that it has any direct bearing on this case' (Lord Reid); ibid 525: ‘The real value of Donoghue v Stevenson to the argument in this case is that it shows how the law can be developed to solve particular problems’ (Lord Devlin).
7. Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465. Hereafter, Hedley Byrne.
8. Caparo Industries plc v Dickman and others [1990] 2 AC 605. Hereafter, Caparo.
9. Caparo [1990] 2 AC 605, 630F-G.
10. Smith v Eric S Bush, Harris v Wyre Forest DC [1990] 1 AC 831. Hereafter, Smith v Eric S Bush.
11. Smith v Eric S Bush [1990] 1 AC 831, 848C–854A, 856B–859G, 8728–874A.
12. Cf Hedley Byrne [1964] AC 465, 486 (Lord Reid), 491 (Lord Morris); Smith v Eric S Bush [1990] 1 AC 831, 848A-B (Lord Templeman); Caparo [1990] 2 AC 605, 620H–621B (Lord Bridge), 638C-E (Lord Oliver).
13. Smith v Eric S Bush [1990] 1 AC 831, 847C-D, 865B-E, 872C. Caparo [1990] 2 AC 605, 621A-B, 621F, 641F-G, 657H, 661C-E.
14. Hedley Byrne [1964] AC 465, 486, 504, 511.
15. Hedley Byrne [1964] AC 465, 486, 497, 514, 538.
16. This interpretation of the nature of the disclaimer of responsibility in Hedley Byrne was accepted in Smith v Eric S Bush [1990] 1 AC 831, 862C-D.
17. Caparo [1990] 2 AC 605, 621A-C, 630B-C, 636G, 638A, 652E-H, 658F.
18. Smith v Eric S Bush [1990] 1 AC 831, 854F-G, 859H-860A, 872C-D. Cf Caparo [1990] 2 AC 605, 661C-E.
19. Smith v Eric S Bush [1990] 1 AC 831, 848C-854A, 856E-8596, 8728–874A.
20. Spring v Guardian Assurance plc and others [1994] 3 All ER 129. Hereafter, Spring.
21. Spring [1994] 3 All ER 129, 143h. Lord Lowry agreed with Lord Goff's analysis: ibid 152a. Lord Slynn and Lord Woolf, while finding for the plaintiff, did not examine whether the plaintiff could succeed under the principle in Hedley Byrne. Lord Keith dissented from the majority view that the plaintiff was entitled to compensation and held at one point that the scope of recovery for pure economic loss under Hedley Byrne did not cover this case: ibid 135j–136a.
22. The insurance industry's regulator, Lautro, required Guardian Assurance to supply a reference: Spring [1994] 3 All ER 129, 148d-f. Guardian Assurance did not, therefore, accept the power of determining what other insurance companies would think of its former employees by making a decision to supply a reference-no such decision was made. Rather, it accepted the power in question by subjecting itself to the regulatory supervision of Lautro.
23. Thus, presumably, the companies seeking the references from Guardian Assurance could have sued Guardian Assurance under the principle in Hedley Byrne for any losses resulting from their deciding to employ the plaintiff on the basis of misleading statements in the references. Cf Spring [1994] 3 All ER 129,147e-f (Lord Goff), 161h–j (Lord Slynn).
24. Henderson and others v Merrett Syndicates Ltd [1994] 3 All ER 506. Hereafter, Henderson v Merrett.
25. White v Jones [1995] 1 All ER 691. Hereafter, White v Jones.
26. Ibid at 704e–g.
27. White v Jones [1995] 1 All ER 691, 702c–703c.
28. Ibid at 710g.
29. White v Jones [1995] 1 All ER 691, 694g–695a (Lord Keith), 731j–732c (Lord Mustill).
30. Ibid at 694d-f (Lord Keith), 733e-g (Lord Mustill).
31. White v Jones [1995] 1 All ER 691, 735a–b.
32. Ibid at 712d.
33. Spring [1994] 3 All ER 129, 144g-h; Henderson v Merrett [1994] 3 All ER 506, 518g, 52Oc–d.
34. Spring [1994] 3 All ER 129, 145j; Henderson v Merrett [1994] 3 All ER 506, 520g–h. Cf White v Jones [1995] 1 All ER 691, 704d–f.
35. Defining stipulatively, I have power over someone (call him or her ‘X’) if I am in a position to ensure whether or not a given proposition (eg ‘X believes a’; ‘X is liable to do b’; ‘X owns c’; ‘X has a job at d plc’; ‘X thinks he/she should do e’) is true in relation to that person.
36. That the defendant knew he was expected to use reasonable care and skill in exercising the power with which he allowed himself to be entrusted can be established by showing that he was expressly told that he was expected to use such care and skill or by showing that it was so obvious that the plaintiff was expected to use reasonable care and skill that he did not need to be told. Clearly, therefore, any express stipulations by the defendant as to how he is to be allowed to exercise the power entrusted him can affect his liability under the principle in Hedley Byrne. Cf Henderson v Merrett [1994] 3 All ER 506, 543h–544e (Lord Browne-Wilkinson).
37. Spring [1994] 3 All ER 129, 146h–j (Lord Goff); 152j–153a (Lord Lowry); 161f–g (Lord Slynn); 168h, 171d (Lord Woolf).
38. Spring [1994] 3 All ER 129, 146j–147a (Lord Goff).
39. Henderson v Merrett [1994] 3 All ER 506, 522d–e.
40. Henderson v Merrett [1994] 3 All ER 506, 520g–h, 522d–f (Lord Goff).
41. White v Jones [1995] 1 All ER 691, 694g–695a (Lord Keith), 704e–g (Lord Goff), 731j–732c (Lord Mustill).
42. White v Jones [1995] 1 All ER 691, 714a–c.
43. Ibid at 717j–718b.
44 . If this is correct then the liability of the defendant in Ministry of Housing v Sharp [1970] 2 QB 223 can be explained as an example of liability under the principle in Hedley Byrne. In that case, the defendant accepted the power to determine whose interests in a piece of land bound a purchaser of that land by taking on a job which involved the exercise of that power. He failed to use reasonable care in exercising that power with the result that the plaintiff lost a charge over the land in question.
Can the liability of the defendants in Junior Books v Veilchi [1983] 1 AC 520 be similarly explained? Lord Keith has suggested it can: Yuen Kun Yeu vA-G of Hong Kong [1988] AC 175, 196E-G; Murphy v Brentwood DC [1991] 1 AC 398, 466G–H. However it is difficult to see how the facts of that case fall within our version of (B), above. In Junior Books the defendants were subcontractors charged with the job of constructing the floor of the plaintiffs' factory. They failed to take reasonable care in doing so and the plaintiffs were allowed to recover from them the cost of repairing the defective floor. To explain the defendants' liability on the basis of the principle in Hedley Byrne as we have explained it we must show that the defendants accepted some power over the plaintiffs. What could this power be? A power to determine whether the floor of the plaintiffs' factory was defective or not? No: if the floor of the plaintiffs' factory was defective then the plaintiffs could repair it themselves. A power to determine whether the plaintiffs would be put to any expense over and above the moneys they paid to their main contractors in securing a non-defective floor for their factory? Again, no: if the floor was defective then the plaintiffs need not have involved themselves in any extra expense in securing a non-defective floor. They could have sued their main contractors for the cost of repairs. (It has been suggested that they did and then discovered that the cost of repairs would exceed the amount of money they had received from their main contractors under the settlement: Adam & Brownsword ‘Privity and the concept of a network contract’ 10 LS 12, 36, n 62 (1990).) Thus it is difficult to explain Junior Books as an example of liability under the principle in Hedley Byrne as we have explained it. Moreover, as we have explained it, the principle in Hedley Byrne would never justify your recovering for failure to receive a benefit due to a defendant's lack of reasonable care and skill except in exceptional cases such as White v Jones where that benefit cannot be obtained without that defendant's assistance. Junior Books may be better explained as a case where the facts warranted finding a collateral contract between the plaintiffs and defendants (cf Shanklin Pier v Detel Products [1951] 2 KB 854) but, for some reason (perhaps owing to the fact that Junior Books was a Scottish case and therefore decided according to Scots law), the case was not argued as a contract case. The law of negligence was therefore abused to see that justice was done. The authors would like to thank Mr John Davies for this suggested explanation of Junior Books.
45. Our (very brief) account of the basis of the liability of fiduciaries owes much to Weinrib, ‘The Fiduciary Obligation’ 25 University of Toronto LJ 1 (1975); Flannigan, ‘The Fiduciary Obligation’ 9 Oxford J of LS 285 (1989).
46. Hedley Byrne [1964] AC 465, 486.
47. Henderson v Merrett [1994] 3 All ER 506, 543d–h.
48. White v Jones [1995] 1 All ER 691, 713e–g.
49. Birks An Introduction to the Law of Restitution (Oxford, 1989) p 28.
50 . For instance, it is now well established that there is no liability under the ‘neighbour principle’ announced in Donoghue v Stevenson [1932] AC 562 for carelessly causing a plaintiff not to receive something: D & F Estates v Church Commissioners [1989] 1 AC 177, Murphy v Brentwood DC [1991] 1 AC 398. It is equally well established that in certain circumstances there may be liability under the principle in Hedley Byrne for carelessly causing a plaintiff not to receive something: Spring [1994] 3 All ER 129, 144d–149g (Lord Goff); White v Jones [1995] 1 All ER 691, 711d–e (Lord Goff), 712c–718h (Lord Browne-Wilkinson). If liability under the principle in Hedley Byrne is treated as indistinguishable from liability under the ‘neighbour principle’ in Donoghue v stevenson then this distinction between the two looks illegitimate and is always liable to be undermined. This happened in Spring where the majority found the defendant liable for carelessly causing the plaintiff not to receive a job without making it clear whether they were finding such liability under the principle in Hedley Byrne or the principle in Donoghue v Stevenson.
Similarly, if liability under the principle in Hedley Byrne is treated as indistinguishable from liability under the ‘neighbour principle’ in Donoghue v Stevenson then ideas which are appropriate to determining whether a given defendant is liable to a plaintiff under the neighbour principle can be expected to contaminate the inquiry into when a given defendant is liable to a plaintiff under the Hedley Byrne principle. We see this in some obiter dicta of their Lordships to the effect that actual knowledge of certain facts is not a prerequisite to a defendant being held liable under Hedley Byrne; it is enough if he ‘ought to have known’ those facts: Hedley Byrne [1964] AC 465, 486 (Lord Reid); Caparo [1990] 2 AC 605, 638B–C (Lord Oliver). As Lord Reid confesses, ‘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’ (op cit). This may be the case with liability under the ‘neighbour principle’ in Donoghue v Stevenson; it is not necessarily the case in respect of liability under the Hedley Byrne principle. (If our arguments are correct then the defendant's actual knowledge of certain facts is a prerequisite of liability under the principle in Hedley Byrne.)