Liability for Negligent Misstatement

1. Issue

There are three issues in this situation concerning recovery of economic loss for negligent misstatement. First, whether Siam is liable for negligent misstatement regarding investment in Global Bubble Company. Second, whether Jason is liable for negligent misstatement for his statements regarding investment in Global Bubble Company. Third, whether Weekly Investment News is liable for negligent misstatement regarding their advice on Global Bubble Company. For students seeking law dissertation help, navigating through these demands a good understanding of all the legal principles and precedents.

2. Law

The applicable law in this situation is the law of tort on economic loss due to negligent misstatement.

The liability for negligent misstatement may arise when the claimant and defendant share a relationship such as the former reposes a high degree of trust in the latter’s advice, and such advice leads to economic loss and the defendant had voluntarily assumed responsibility (Steele, 2010). Important case in this respect is Hedley Byrne, but other authorities also relevant as noted below.

Hedley Byrne & Co v Heller & Partners Ltd [1964] AC 465 HL: claimant suffered economic loss when acting under the defendant’s professional advice. The defendant had while giving the advice noted that the advice was for “your own private use and without responsibility on our part”. The House of Lords held that negligent misstatements could give rise to a liability in tort. In principle, the relevant question is whether the claimant was entitled to rely on the defendant’s statement. The more generally the defendant’s statement is broadcast, the less likely the court is to hold that there is a special relationship which gives rise to liability. Also essential is that there is a voluntary assumption of responsibility on the part of the person giving advice.

Smith v Eric S Bush [1989] 1 AC 831: the mortgagee’s surveyors were held liable for misstatements regarding the condition of the building. Reliance by claimant on the defendant’s surveyor’s advice and subsequent economic loss led to the defendant being liable for economic loss.

Caparo Industries plc v Dickman, [1990] 2 AC 605: no liability arises when there is lack of proximity between the auditor (who made the misstatement) and the bidder who relied on it.

Important factors for fixing defendant’s liability: The extent to which a claimant relies on the defendant’s advice, the reasonableness of this reliance, and the defendant’s knowledge of this reliance are all relevant factors. A significant point can be the relationship between the claimant and the defendant in the case.

Gran Gelato Ltd v Richcliff (Group) Ltd [1992] 1 All ER 865: The claimant was not allowed to recover economic loss from the defendant solicitor on the latter’s advice on sub-lease of the premises from the landlord because the defendant was the landlord’s solicitor.

Edwards v Lee [1991] NLJR 1517: Claimant was allowed to recover economic loss from the defendant solicitor for a misleading reference.

Purely social relationship: it may be unreasonable to place reliance on the defendant where the relationship between the claimant and the defendant is purely social and there may be an absence of a duty of care on the part of the defendant towards the claimant.

Chaudhry v Prabhakar [1988] 3 All ER 718 CA: The claimant was allowed to recover economic loss from her close friend based on whose advice she purchased a car as she did not know much about cars and the defendant friend did. Therefore, her reliance on the friend’s opinion was held to be reasonable under the circumstances.

Exclusion of liability specifically by the defendant may not be used to exclude liability when the defendant knows that the claimant will rely on the information and that it is reasonable to do so. The Unfair Contract Terms Act 1977 bar exclusions under certain circumstances.

3. Application of law

I. Siam

Sian is a stockbroker. She informs Mark that Global Bubble Ltd is a good investment and also offers to undertake the purchase for Mark when given the go-ahead by him. Mark may argue that Siam would have knowledge that Mark would reasonably rely on the advice. Moreover, Sian has also voluntarily assumed responsibility by offering to undertake the purchase. These two points lead to the application of the Hedley Byrne & Co v Heller & Partners Ltd, [1964] AC 465 HL, to establish liability for economic loss caused by reliance on Siam’s advice.

II. Jason

Jason is a friend of Mark’s whom he asks about the investment over a drink in a pub. He is also a financial underwriter for a local insurance company but he informs Mark that he does not have much experience in financial advice. As this is a close relationship and it is not reasonable for Mark to rely on advice of a friend who has declared his own lack of knowledge on the matter, Chaudhry v Prabhakar, [1988] 3 All ER 718 CA, can be applied to hold that Jason does not have liablity for Mark’s economic loss.

III. Weekly Investment News

Weekly Investment News is generally broadcast and the advice was not specific to Mark. Generally, as per the principle in Hedley Byrne & Co v Heller & Partners Ltd, [1964] AC 465 HL, the more generally the defendant’s statement is broadcast, the less likely the court is to hold that there is a special relationship which gives rise to liability. Caparo Industries plc v Dickman, [1990] 2 AC 605, also lays down the principle that in the absence of proximity between the claimant and the defendant, there will be no liability. Therefore, as Mark may not be able to prove a special relationship with Weekly Investment News and the nature of the advice being general in nature, he may not be able to recover economic loss.

4. Conclusion

This section will conclude on the basis of the law and analysis sections above.

Bibliography

Caparo Industries plc v Dickman, [1990] 2 AC 605

Chaudhry v Prabhakar [1988] 3 All ER 718 CA

Edwards v Lee [1991] NLJR 1517

Gran Gelato Ltd v Richcliff (Group) Ltd [1992] 1 All ER 865

Hedley Byrne & Co v Heller & Partners Ltd [1964] AC 465 HL

Smith v Eric S Bush [1989] 1 AC 831

Steele, J. (2010). Tort Law: Text, Cases, and Materials . Oxford: Oxford University Press.

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