Negligent Misstatement Flashcards
Candler v Crane Christmas Co (1951):
Facts:
• Accountants negligently prepared company’s accounts; investors lost money
• No contractual relationship or fraud involved
Principle:
• Lord Denning felt that there should be a duty of care to the investor and: ‘any third party to whom they themselves show the accounts, or to whom they know their employer is going to show the accounts so as to induce them to invest money.’
Spartan Steel and Alloys Ltd v Martin and Co Ltd (1973):
Facts:
• An electric power cable was negligently cut resulting in a loss of power to the manufacturers of steel alloys
• The ‘melts’ in the furnace had to be destroyed, thus wrecking the furnace
• Claimants were successful in their claim for the damage, but unsuccessful to claim for lost profits on four further ‘melts’ they could have completed during the power cut
Principle:
• Lord Denning concluded that the first claim was allowed because it was ‘physical damage’, whereas the second claim was ‘directly consequential’
• It would also lead to open ‘floodgates’ in the law
Basic requirements for Negligent Misstatement
Hedley Byrne v Heller and Partners Ltd (1964)
Facts:
• Advertising company approached with a view to prepare a campaign for a small company – Easipower
• Had not previously dealt, so approached their bank for a credit reference
• Bank gave satisfactory reference without checking current financial standing
• Advertisers produced and lost money when Easipower went into liquidation
• Sued bank for negligently prepared advice
• Claimed failed – Disclaimer of liability in the credit reference
Principle:
• There must be a special relationship – based on skill and judgement of the defendant and the reliance placed upon it
• The person giving the advice must possess a special skill relating to the type of advice given – defendant ought to have realised that the claimant would rely on that skill
• The party receiving the advice has acted in reliance on it – in the circumstances it was reasonable for the claimant to rely on the advice
Special Relationship applied in:
Yianni v Edwin Evan and Sons (1982)
Facts:
• Building society surveyor was held to owe a duty to property valued at £12,000
• Later discovered that repairs worth £18,000 were required
• Prepared to impose a duty; at the time 15% of purchasers would have had their own independent survey carried out
• Foreseeable they would rely on the advice
Principle:
• Whether there is sufficient proximity between the parties for there to be the possibility of reliance and for the duty to arise – contractual relationship
Chaudry v Prabhaker (1988)
Facts:
• Woman asked friend to find her a second-hand car (friend had some experience of cars)
• Later found car was unroadworthy after having been in a road accident
• Successfully sued
Principle:
• Still possible to identify special relationship despite no contractual relationship
• Defendant knew claimant would rely on advice
Possession of skills applied in:
Mutual Life and Citizens Assurance Co Ltd v Evatt (1971)
Facts:
• A representative of an insurance company gave advice about the products of another company
Principle:
• Claim only possible where the party giving the advice is a specialist in the field which the advice concerns
• Court held that there could only be a duty if the party giving advice had held himself out as being in the business of giving the advice in
Reasonable reliance applied in:
Smith v Eric S Bush (1990)
Facts:
• Building society evaluation had identified chimney breasts had been removed
• Valuer had failed to check whether brickwork above was properly secured
• After purchase, it collapsed
• Reasonably foreseeable that the purchaser would rely on the advice
Principle:
• Must be shown that reliance on the negligently given advice was indeed reasonable
Harris v Wyre Forest District Council (1989)
Facts:
• In the sale of a council house, a negligent survey had been carried out for local authority
• Even though purchaser did not see the valuation, they could rely on it
• Disclaimer of liability inserted was ineffective – not reasonable within the Unfair Contract Terms Act 1977
Principle:
• Extended Hedley Byrne to reliance by third parties
JEB Fasteners Ltd v Marks Bloom & Co (1983)
Facts:
• Negligent statement of the value of a company’s stock did not give rise a duty
• Party buying the company was doing so only to secure the services of two directors and placed no reliance on stock
Principle:
• Not be foreseeable reliance if the claimant belongs to a large group of potential claimants that is too large for the claimant to have in their contemplation when giving the advice
Knowledge of purpose created in:
Knowledge of purpose created in:
Caparo Industries plc v Dickman (1990)
Facts:
• Concerned an annual audit of a company required under the Companies Act 1998
• Caparo took shares into another company under the reliance of the audit on the success of the company
• No claim against audit company as there was an insufficient relationship as the auditors were unaware of the presence of Caparo
Principle:
• Advice is required for a purpose, either laid out in general or in detail
• Purpose is made known to the advisor
• Advisor knows that the advice will be given to the person relying on it for the identified purpose
• Advice will be acted upon without any further advice
• Person relying on the advice uses it and suffers as a result
James McNaughten Paper Group Ltd v Hick’s Anderson & Co (1991)
Facts:
• Accountants drew up accounts at very short notice for the Chairman of a company
• No duty of care to person who acquired the company in a take-over bid, having inspected the accounts
Principle:
• Purpose for which the statement was made
• The purpose for which the statement was communicated
• The relationship between the person giving the advice, the person receiving the advice and any relevant third party
• The size of any class that the person receiving the advice belonged to
• The degree of knowledge of the person receiving the advice
Distinguished in some cases between Caparo
Henderson v Merrett Syndicates Ltd (1994)
Facts:
• Massive losses to unlimited liability investors
• Sued underwriting agents who dealt with investments
• Too late to sue for breach of contract
Principle:
• Assumption of responsibility by the party giving the advice
