Principle of Hedley Byrne

 The true width of the Hedley Byrne principle was obscured until recently by the facts and background to the case. A case of pure economic loss, it also involved careless advice. As such, liability had to be reconciled with the decision in Derry v. Peek. At the end of the nineteenth century, Derry v. Peek put the brake on developments in equity that might have led to liability for careless misrepresentations. The decision in Derry v. Peek, according to Lord Bramwell, represented the victory of general principle over‘the desire to effect what is or what is thought to be, justice in a particular instance.’

In the decision itself the court stressed the need for a ‘voluntary assumed responsibility’ as between the defendant and plaintiff - in what was de facto a two-party scenario - and a foreseeable and reasonable reliance by the plaintiff on the advice or information that resulted. However, it is clear from the judgments of Lords Devlin and Morris that the assumption of responsibility and reliance could also apply to negligent acts or services. This is hardly surprising, given there may be a fine line between words and acts, as is evidenced by the American case of Glanzer v. Shephard.

So Hedley Byrne accepted that there may be a duty to take care to avoid pure economic loss but in so doing made it clear that such liability would not be founded on the same basis as the duty to avoid physical harm. The key factor in the principle was the presence of a ‘voluntary assumption of responsibility’.

The Basis Of Liability

Ever since Hedley Byrne, the perceived need to set limits to liability for negligent misstatements (and now services) that cause pure economic loss, on a narrower basis than the principle of Donoghue v. Stevenson, has dominated this area of tort law. Something more than ‘mere foreseeability’ was required.

However, it is clear from cases such as Smith v. Bush and Spring v. Guardian Assurance that, in determining the imposition of liability, it is not a test of universal application. So in Smith v. Bush there was no voluntary assumption of liability, given the presence of an express disclaimer and in Spring v. Guardian Assurance the court was faced not with the two-party Hedley Byrne scenario but rather with advice about the plaintiff to a third party. Yet in both the cases, the plaintiff succeeded in negligence.