Hedley Byrne & Company Ltd v Heller & Partners Ltd

 
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[1963] UKHL J0528-1

House of Lords

Lord Reid

Lord Morris of Borth-y-Gest

Lord Hodson

Lord Devlin

Lord Pearce

Hedley Byrne & Company Limited
and
Heller & Partners Limited

Upon Report from the Appellate Committee, to whom was referred the Cause Hedley Byrne & Company Limited against Heller & Partners Limited, that the Committee had heard Counsel, as well on Monday the 25th, Tuesday the 26th, Wednesday the 27th, and Thursday the 28th, days of February last, as on Monday the 4th, Tuesday the 5th, Wednesday the 6th and Thursday the 7th, days of March last, upon the Petition and Appeal of Hedley Byrne & Company Limited, whose registered office is situate at 140 Park Lane, in the City of Westminster, Advertising Agents, praying, That the matter of the Order set forth in the Schedule thereto, namely, an Order of Her Majesty's Court of Appeal of the 18th of October 1961, might be reviewed before Her Majesty the Queen, in Her Court of Parliament, and that the said Order might be reversed, varied or altered, or that the Petitioners might have such other relief in the premises as to Her Majesty the Queen, in Her Court of Parliament, might seem meet; as also upon the Case of Heller & Partners Limited, lodged in answer to the said Appeal; and due consideration had this day of what was offered on either side in this Cause:

It is Ordered and Adjudged, by the Lords Spiritual and Temporal in the Court of Parliament of Her Majesty the Queen assembled, That the said Order of Her Majesty's Court of Appeal, of the 18th day of October 1961, complained of in the said Appeal, be, and the same is hereby, Affirmed, and that the said Petition and Appeal be, and the same is hereby, dismissed this House: And it is further Ordered, That the Appellants do pay, or cause to be paid, to the said Respondents the Costs incurred by them in respect of the said Appeal, the amount thereof to be certified by the Clerk of the Parliaments.

Lord Reid

My Lords,

1

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. I cannot do better than adopt the following statement of the case from the judgment of McNair, J.:

"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."

2

The Appellants, becoming doubtful about the financial position of Easipower, got their bank to communicate with the Respondents who were Easipower's bankers. This was done by telephone and the following is a contemporaneous note of the conversation which both parties agree is accurate:—

"Heller & Partners, Ltd. Minute of telephone conversation. Call from National Provincial Bank Ltd., 15 Bishopsgate, E. C.2. 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, Ltd., and whether they would be good for an advertising contract for £8,000 to £9,000. I replied, 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, Ltd., from the liquidator. We believe that the company would not undertake any commitments they are unable to fulfil."

3

Some months later the Appellants sought a further reference, and on 7th November, 1958, the city office of the National Provincial Bank Limited wrote to the Respondents in the following terms:—

"Dear Sir, We shall be obliged by your opinion in confidence as to the respectability and standing of Easipower Ltd., 27, Albemarle Street, London, W.1, and by stating whether you consider them trustworthy, in the way of business, to the extent of £100,000 per annum advertising contract. Yours faithfully,"

4

On 11th November, 1958, the Respondents replied as follows:—

"CONFIDENTIAL

For your private use and without responsibility on the part of this Bank or its officials.

Dear Sir, In reply to your enquiry 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."

5

The National Provincial Bank communicated these replies to their customers the Appellants, and it is not suggested that this was improper or not warranted by modern custom. The Appellants relied on these statements and as a result they lost over £17,000 when Easipower went into liquidation.

6

The Appellants now seek to recover this loss from the Respondents as damages on the ground that these replies were given negligently and in breach of the Respondents' duty to exercise care in giving them. In his judgment McNair, J. said:

"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."

7

Before your Lordships the Respondents were anxious to contest this finding, but your Lordships found it unnecessary to hear argument on this matter, being of opinion that the appeal must fail even if Mr. Heller was negligent. Accordingly I cannot and do not express any opinion on the question whether Mr. Heller was in fact negligent. But I should make it plain that the Appellants' complaint is not that Mr. Heller gave his reply without adequate knowledge of the position, nor that he intended to create a false impression, but that what he said was in fact calculated to create a false impression and that he ought to have realised that. And the same applies to the Respondents' letter of 11th November.

8

McNair, J. gave judgment for the Respondents on the ground that they owed no duty of care to the Appellants. He 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. 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 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."

9

This judgment was affirmed by the Court of Appeal both because they were bound by authority and because they were not satisfied that it would be reasonable to impose upon a banker the obligation suggested.

10

Before coming to the main question of law, it may be well to dispose of an argument that there was no sufficiently close relationship between these parties to give rise to any duty. It is said that the Respondents did not know the precise purpose of the enquiries and did not even know whether the National Provincial Bank wanted the information for its own use or for the use of a customer: they knew nothing of the Appellants. I would reject that argument. They knew that the enquiry was in connection with an advertising contract, and it was at least probable that the information was wanted by the advertising contractors. It seems to me quite immaterial that they did not know who these contractors were: there is no suggestion of any speciality which could have influenced them in deciding whether to give information or in what form to give it. I shall therefore treat this as if it were a case where a negligent misrepresentation is made directly to the person seeking information, opinion or advice, and I shall not attempt to decide what kind or degree of proximity is necessary before there can be a duty owed by the defendant to the plaintiff.

11

The Appellants' first argument was based on Donoghue v. Stevenson [1932] A.C. 562. That is a very important decision, but I do not think that it has any direct bearing on this case. That decision may encourage us to develop existing lines of authority but it cannot entitle us to disregard them. Apart altogether from authority, I would think that the law must treat negligent words differently from negligent acts. The law ought so far as possible to reflect the standards of the reasonable man, and that is what Donoghue v. Stevenson sets out to do....

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