The change borne by Hedley is important for lawyers but the practical implications are worth bearing in mind for anyone whose statements might be relied upon by other parties where financial loss is possible, particularly in business relationships.
Special Relationships
Hedley introduced the concept of a special relationship that could exist, giving rise to a duty of care, where one party relied on information given to it by another party. Before Hedley, a duty of care only arose where a contractual or fiduciary relationship existed. Following Hedley any ‘special relationship’ could imply a duty of care even where no contractual relationship existed between the parties. ‘Special relationship’ could be interpreted widely to include most business relationships and some other categories of relationships.
Facts
In Hedley, the claimant advertising agency requested a credit reference for one of its customers from the customer’s bank, Heller & Partners Ltd. Heller responded with a letter disclaiming “responsibility on the part of this bank” but stating that the customer was “considered good for its ordinary business engagements”. Hedley accepted the customer’s order and subsequently lost £17,000 when the customer went into liquidation.
Although the disclaimer meant Hedley did not receive any damages, the court found that the relationship between the parties was ‘sufficiently proximate’ to create a duty of care. It considered that it was reasonable for Heller to have known that information it provided would be relied upon.
Subsequent Interpretations
The implications of Hedley were far-reaching, with many cases referring to the precedent that it established. Two notable examples were Smith v Bush [1989] and Caparo Industries v Dickman [1990].
In Smith the surveyors for a mortgagee were successfully sued by a house purchaser who relied on their survey. The chimney fell down after the purchase despite their conclusion that the house did not need significant repair. In that case the duty of care owed by the surveyor was extended to a third party that the court considered sufficiently proximate.
In Caparo Industries the duty of care was limited to some extent. The court held that no liability existed for an auditor to a third party purchaser of a company because the auditor carried out the audit for the company, not the third party. In terms of the contract at issue, the statement was not made in the knowledge it would be relied upon for that purpose.
We recommend that individuals and businesses seek appropriate legal advice to avoid misrepresentation issues, particularly when relying upon disclaimers. Rollingsons has experienced lawyers who can assist you; for more information please contact James Crighton via e-mail jcrighton@rollingsons.co.uk or by telephone on 0207 611 4848.
