What Is Liability for Negligent Misstatement?

Liability for negligent misstatement can arise when someone gives careless information or advice, assumes responsibility for it, and another person reasonably relies on it and suffers loss. In Hedley Byrne & Co Ltd v Heller & Partners Ltd, the House of Lords recognised that a negligent statement could give rise to a duty of care even without a contract between the parties.

When does a duty arise?

A negligent misstatement is a statement made without reasonable care. It is especially important in Tort because a claimant may suffer pure economic loss: financial loss that does not result from injury to a person or damage to property.

The claimant must establish a sufficiently close relationship with the person giving the information. The key questions are whether that person assumed responsibility for the statement and whether the claimant reasonably relied on it. A duty is more likely where the speaker knows the purpose for which the information is sought and knows the recipient is likely to act on it. A duty alone is not enough: the claimant must also show that the statement was made negligently and that relying on it caused the loss.

Why did Hedley Byrne fail?

Hedley Byrne sought a bank reference about a company before extending it credit. The reference was given “without responsibility”. Although the case established that liability for negligent misstatement was possible, that disclaimer prevented Hedley Byrne’s claim against the bank.

For example, suppose an accountant carelessly tells a business that a supplier is financially sound, knowing the business will rely on that advice when placing a large order. If the business reasonably relies on it and loses money, the accountant may be liable, depending on all the circumstances.

Exam mistake to avoid: do not write that Hedley Byrne awarded damages. It established the possibility of a duty, but the claimant lost because of the disclaimer.