Liability for economic loss

This question concerns potential liability for economic loss caused by negligent misstatement. It is not determined by the Donoghue v Stevenson1 case alone in which the 'neighbour principle' was established, but in agreement with more restrictive test which preside over the imposition of a duty of care for such statements. This is due to the fact that the potential liability of the representor is far wider than that where the subject involves a negligent act since a statement can have an effect on a large undefined class of plaintiffs.

Claims for negligent misstatement can often involve vast amounts of money since unlike physical harm, where events tend to rest where they fall, advice can be relied upon by any number of people who come into contact with it. In order to determine whether Dr Dire owes Ben a duty of care in respect of the economic loss arising from the negligent medical reference, the criteria laid down in Hedley Byrne & Co. v Heller & Partners2 must be satisfied.

The House of Lords stated that a 'special relationship' must exist between the claimant and defendant so that the claimant placed reasonable reliance, which was known, or ought to have been known to the defendant, on the statement. Lord Morris stated that the defendant needed some special expertise in order for there to be a special relationship- the defendant needs to be in a better position then the claimants to know the facts.

If they are on equal footing then it is unlikely for there to be a special relationship. It was thought initially by the Privy Council that the claimant needed to show that the defendant's business was the giving of the advice in which the defendant has special expertise3 However, the Court of Appeal in Esso Petroleum v Mardon4 deliberated that there was no need for the defendant to be in the business of giving that advice.

This approach was avowed in the case of Chaudhry v Prabhaker5 where liability was imposed when the statement was made on a social occasion but the defendant had specialist knowledge compared to the claimant. 6 There was a special relationship. Lord Devlin in Hedley Byrne7 suggested that the relationship was something "equivalent to contract"8 where it might be said that the parties ought to be aware that there were legal implications for the giving of advice.

In Caparo Industries plc v Dickman9 Lord Bridge said that, in order for a duty to arise, it was necessary to show that the defendant knew that his statement would be communicated to the claimant, either as an individual or as a member of an identifiable class, specifically in connection with a particular transaction or transactions of a particular kind, and that the claimant would be very likely to rely on it in deciding whether or not to enter into transaction.

10 In Smith v Eric S. Bush11 the claimant suffered loss as a result of the defendants' negligence in surveying a house, which she intended to purchase through a mortgage supplied by instructing building society. It was held to be reasonable for the purchaser to rely on the survey carried out by the lenders' surveyor. 12 The defendants knew the identity of the claimant and knew that she would rely upon the advice.

The requirement laid down in Hedley Byrne13 that liability depends upon the existence of voluntary assumption of responsibility was discredited by Lord Griffiths as being unrealistic14; while the Court of Appeal in James McNaughton Paper Group v Hicks Anderson15 stressed that the claimants 'reliance' upon the information must be reasonable. The skill of the advisor is therefore an influential factor when imposing a duty of care.

In applying the rules laid down in Hedley Byrne16 (as construed by the House of Lords in Caparo17) to Dr Dire, it is suggested that a 'special relationship' may be found to exist given that Dr Dire, as a doctor must know that his advice would be relied upon to provide a recommendation to Comfy Ltd who will make the final decision. As a professional he clearly has skill and it is reasonable and correct to expect Dr Dire to have due regard to the interests of those who receive his advice and information.

Relating back to the issue in question, Comfy Ltd relied on the statement of Dr Dire, which therefore resulted in Ben suffering the loss of a job however Ben cannot use the restrictive test in Hedley Byrne18 directly. Instead he needs to find other support in case law. In Spring v Guardian Assurance plc & Others19, the defendants gave a very disapproving job reference about the claimant. The claimant was therefore unable to gain further employment in the life-assurance industry as a result of the reference, which stated he could not be trusted.

He consequently sued the defendant for negligence after hearing the nature of the reference. Although there was no doubt that a duty of care was owed by the referee to the person requesting a reference20, it was dubious as to whether a duty of care was also owed to the subject of the reference. It was held by the Court of Appeal that the claimant's only remedy would be in defamation, not negligence. The House of Lords21 however held that there could be a duty of care. Lord Geoff based his way of thinking on the Hedley Byrne22 concept of assumption of responsibility.

By giving a reference Lord Geoff believed that the company assumed a responsibility to the claimant to give a careful reference. By analogy with Spring23 in Baker v Kaye24, a doctor carried out a pre-employment medical assessment on behalf of a company. In such circumstances, it was held that a doctor could owe a duty of care to a prospective employee. Even though, there had been no breach of duty on the facts of the case. The case however was distinguished from Spring as there had never been a contractual relationship between the prospective employer and employee but it was regarded as just and reasonable to impose a duty.

25 If it is evident that both Ben and Dr Dire are in a contractual relationship then it is much better to rely on the Misrepresentation Act 1967 rather then suing in negligence. To be successful Ben would need to convey that there was an actionable misrepresentation and that he was induced by the false statement. Due to Ben also resigning from his current job, which was highly paid and consequently failing to secure a job with Comfy Ld this has amounted to a financial loss, which has amounted to pure economic loss, this is where there is no physical loss suffered by the claimant.