LAW OF TORTS-NEGLIGENT MISSTATEMENT-

PREPARED BY;

Question

Sara comes to you both and seeks opinions regarding the following questions:

– To what questions can a person be liable in torts for a negligently made statement?

– When developing the law in this area, to what extent do you think the Courts were concerned with limiting the number of potential claims?

– Have the Courts developed this area of the law in an effective and consistent manner?

As law students, advise Sara.

Introduction:

Liability for negligently made statements has been recognized by the Law of Contract via relating to misrepresentation.

Prior to this, claimant had to rely either on the law of Contract or the Tort of Deceit.

Deceit is based on a fraudulent factual misrepresentation whereas negligent misstatement covers opinions and factual statements made through negligence.

*Deceit- statement made was a lie*Negligent Misstatement- negligently made the opinions

or statement

first issue:

To what questions can a person be liable in torts for a negligently made statement?

Principle:1. Duty of Care– (Lord Atkin; Donaghue v Stevenson)

– Proximity test– Foreseeability test

– (Caparo Industries’ case)– Three-stage test; whether it was fair, just and reasonable to impose

such duty of care on the Defendant.

2. Hedley Byrne & Co Ltd v Heller & Partners Ltd– (Facts of the case)– HOL held: Duty of care would be imposed in such

situation where there is a special relationship between the parties relying on the defendant’s advice.

Elements:

• Special Relationship– When plaintiff trust the defendant– When plaintiff rely on the defendant skills and knowledge– It is reasonable for plaintiff to rely on the advice

Case:Mutual Life & Citizens’ Assurance Co Ltd v Evatt– (facts of the case)

– Majority decision: Duty of care would only arise if the Defendant is in the business of giving advice or information or profess to have expertise in a particular field.

– Minority decision: Duty of care may nonetheless arise when a person seeks advice from another person and made it known that he will rely on the advice. If the party giving the advice does so without imposing any conditions, he owes duty of care to act reasonably in those circumstances.

Esso Petroleum v Mardon [1976] QB 801, CA– (facts of the case)

– Followed the minority opinion in Evatt.

• Voluntary assumption by party giving advice*regarding disclaimer

Case:Smith v Eric S. Bush– (facts of the case)– HOL held that based on the Unfair Contract Terms Act

1977(not applicable in Malaysia), the relationship of the parties was such that it was fair to impose a duty of care. Parties are relying on the report in order to effect the mortgage. Duty of care arose in this case arose based on the deemed assumption of responsibility on the part of the surveyors. They were aware of the identity of the plaintiff and knew that the plaintiff would rely on the statement given.

• Defendant knows that Plaintiff will rely on the advice.– It must be an advice– Statement made over the phone or opinions

expressed on social or informal occasions does not give rise to liability.

Case:Chaudry v Prabhakar [1988]3 All ER 718– (facts of the case)– The Court found that all the requirements in Hedley

Byrne were satisfied and held that the relationship between two friends was equivalent save only for the absence of consideration.

• Reasonable for Plaintiff to rely on the advice

Case:Caparo Industries v Dickman (1990) 1 All ER 568– (facts of the case)– HOL held that the defendants were not liable.

The Principles of Law derived are as follows:

• Firstly, defendant owes no duty of care at public at large• Secondly, relationship of proximity only exist if the damage was

foreseeable• Thirdly, defendant has no reason to anticipate that his statement would

be relied by plaintiff• Fourthly, relationship of proximity exist if the defendant knows that his

statement will be communicated to plaintiff.• Fifthly, proximity is established if statements made in connection to a

particular transaction and plaintiff is very likely to rely on the statement for the purpose of deciding whether to enter into the transaction.

Conclusion:

A person can be liable in torts for a negligently made statement if he owes duty of care towards the plaintiff and fulfils all the elements as stated.

second issue:

When developing the law in this area, to what extent do you think the Courts were concerned with limiting the number of potential claims?

The House of Lords, for the first time, established that a person could be liable for a negligent statement.

However, the HOL, conscious to keep such liability within controllable bounds, and was not prepared to extend the general duty of care in tort to cover negligent misstatements.

Clearly, the HOL was concerned with opening of floodgates of litigation and therefore limited the instances where the defendant would owe the claimant a duty of care, by establishing that there must be a ‘special relationship’ between the maker of the statement and the recipient of the statement.

Unfortunately, the House did not define precisely what would amount to a ‘special relationship’ and, in fact, the judgments of the majority judges are somewhat inconsistent.

Lord Morris said that in order for a special relationship to arise, two requirements must be met, namely :

(i) that the defendant must possess a special skill(ii) the claimant must rely on that skill.

As a result of this, it is clear that a duty of care will primarily be owed in situations where the defendant is some sort of professional advisor.

Generally, to established liability for negligent misstatement a plaintiff would have to satisfy the following criterias:-– Reasonable reliance by the plaintiff– Voluntary assumption of responsibility by the defendant.

The English Courts have been more ready to pronounce the existence of a voluntary assumption of responsibility and so a duty of care, where the plaintiff is readily identifiable .

Once it is established according to the criteria above that a special relationship exists, there is arguably no need to examine whether it is “fair, just and reasonable” to impose a duty of care.

Liability under the Hedley Byrne principle has been extended beyond negligent misstatement to include situations where the defendant undertakes to perform a service or task to the plaintiff.ie: Solicitors & Client

Case:Dato’ Seri Au Ba Chi v Malayan United Finance Bhd & Anor– The elements of ‘reasonable reliance and voluntary assumption of

responsibility are easily satisfied.

In Malaysia, in the case of Chin Sin Motor Works Sdn Bhd & Anor v Arosa Development Sdn Bhd & Anor, the defendant was held liable as the architect ought to know that the plaintiff would rely on his certification.

It is a straightforward application of the Hedley Byrne principle.

Liability may also arise between public authority ad an individual who relies on information supplied by the former.

Case:Pendaftar dan Pemeriksa Kereta-Kereta Motor v KS South Motor Sdn Bhd– CoA held the defendants liable as there was foreseeability of damage and proximity

between the parties. Of the opinion that a duty would arise towards a paying class of persons who would clearly rely on the defendants information.

(in comparison to Caparo’s case)

In Malaysia, pure economic loss arising from a negligent performance of service is recoverable if the plaintiff is able to prove:

– That he reasonably relied on the proper performance of that service by the defendant

– He is identifiable or belongs to a class of persons whom the defendant knows to be relying on the advice or information, thus establishing proximity and foreseeability

Conclusion:

the Courts were concerned with limiting the number of potential claims when developing the law in negligent misstatement. Therefore limited the instances where the defendant would owe the claimant a duty of care, by establishing that there must be a ‘special relationship’ between the parties.

third issue:

Have the Courts developed this area of the law in an effective and consistent manner?

The question on special relationship.

Lord Devlin and Lord Reid stated that a third requirement was needed, that the defendant must voluntarily assume responsibility to the claimant in addition to Lord Morris two requirements, special skills by the defendant and that the claimant must rely on that skill.

In 1990, Lord Griffiths stated that the requirement of a voluntary assumption of responsibility was not ‘helpful or realistic.’

Lord Goff, in 1995, stated that an assumption of responsibility is required in order to establish a duty of care.

In 2006, Lord Bingham described the requirement as ‘sufficient but not necessary.’

As a result of this, subsequent courts have struggled to apply the law consistently.

For example, In Mutual Life and Citizens’ Assurance Co Ltd v Evatt, Lord Diplock stated that the duty of care would not arise in cases where the maker of the statement was not acting in the course of a business or professional activity.

However, in Chaudhry v Prabhakar, a young man who gave advice to his friend regarding which car she should buy, had to pay over £5,500 in damages when it transpired that the car purchased based on his advice was unsatisfactory.

The lack of consistency has led to McHugh J, a judge of the High Court of Australia, to state that ‘ since the decision in Hedley Byrne & Co Ltd v Heller & Partners Ltd, confusion bordering on chaos has reigned in the law of negligence’

In Caparo Industries v Dickman (the case which established the modern tortious duty of care), the House sought to set out clearly when a special relationship would exist.

However, questions still exist.

The requirement for a voluntary assumption of responsibility was not mentioned by the House in Caparo.

However, the principles established in Hedley Byrne have been applied to cases that do not concern the provision of advice (these cases come under the heading of ‘extended Hedley Byrne liability’ and notably concern the provision of services), and in these cases, the courts have stated that the assumption of responsibility is an important (though not a necessary) condition for liability.

Conclusion:

The law relating to negligent misstatement is still far from clear and settled and the principles laid down in Hedley Byrne are being extended to situations that the House in Hedley Byrne could not have envisaged. Therefore, overall, the law has not developed in an effective and consistent manner.

references:

• Law of Torts in Malaysia, Second Edition by Norchaya Talib• Oxford University Press, 2010• Lecture’s Notes by Dr. Noraiza Abdul Rahman