The law of negligence

In the past courts have been reluctant to compensate for pure economic loss, however recognition that loss is usually financial when bad advise is given has lead to a major change in the law of negligence. The possibility of extending the duty of care to protect pure financial interests was raised in the case of Hedley Byrne & Co Ltd v Heller &Partners (1964). This was a case were an advertising agency became doubtful about the financial status of one of their clients. They made enquiries of the defendants bankers.

The bank replied first orally and then in writing that the company was financially sound. The advertising agency relied on this advice and suffered financial loss when the company went into liquidation. The 2 key factors that were laid down in this case were a special relationship and a reasonable reliance on the statement. Although the principles laid down in Hedely Byrne were interpreted fairly narrowly it has lead the way for a growing number of cases involving professional negligence.

Courts take a restrictive approach to negligent words causing pure economic loss. This restriction is justified by Lord Pearce in Headly Byrne on the basis that " Words are more volatile than deeds, they travel fast and far afield, they are used without being expended. " This restrictive approach taken by the courts will make it hard to find anyone liable for your loss. When dealing with who could be liable in this case I think it is necessary to look at the barman the solicitor and the company's auditors separately.

Firstly I will look at the possibility that the barman is liable in the case Pasely v Freeman (1789) it was said that. " The tort of deceit is committed when the defendant makes a false statement to the plaintiff knowing that it is false, or reckless to its truth, with the intention that that the plaintiff acts on it. The plaintiff does act and suffers damages as a result". Considering this statement although the advise of the barman is not given it is possible that his advise was false, however there is the reasonable possibility that he did not know that you would act on his advise.

However it is very unlikely that the Barman will be liable for your loss as the advise was given in a social situation, although the barman may have seemed to be well informed about shares, there is no special relationship between you and the barman. In Hedley Byrne it is said that a duty of care is limited to professional advisers and those claiming special skills in giving this sort of advise. No duty is owed when a statement is made on a purely social occasion This is also shown in Chaudry v Prabhakar (1988) This is a case were the plaintiff asked a friend who had some knowledge of cars, though not a mechanic, to find a suitable car.

The defendant found her a car which he recommended but which was subsequently discovered to have been involved in a serious accident, poorly repaired and unroadworthy all though liability was imposed on the defendant the judge distinguishes between the giving of advise and passing on information i. e. was the advise given in a social situation, or did the person giving the advise have special skills. Stocker L. J. stated that " in the absence of other factors giving rise to such a duty, the giving of advice sought in the context of family, domestic or social relationships will not in itself give rise to any duty in respect of such advice.

" in such situations there would not be reasonable reliance. The advice sought from your barman occurred in a social relationship and so there is no reasonable reliance. ` Next I will look at whether it is possible that the solicitor could be liable. In the case Caparo Industries plc v Dickman (1990) it was decided that in order for the defendant to be liable the defendant must take on a voluntary assumption of responsibility for giving advise, Know the type of transaction involved, know the information must go to the plaintiff, and know that it is likely that the plaintiff will rely on this information.

In my opinion the solicitor does all four of these things. Firstly the solicitor agreed to advise you, this is an assumption of responsibility for giving advise. Next comes the only point that is not so clear knowing the type of transaction involved, it is obvious that your intention was to buy shares, but in what company, however he did know the information was going to you and it was likely that you would act on it. However in Hedely Byrne & Co Ltd v Heller & partners Ltd (1964) the defendant must have a special skill, or knowledge in this case there is no reason for a solicitor to have specialist knowledge in stocks and shares.

Although there is a greater chance of the solicitor being held liable than the barman I also think it would be unlikely. Finally I will look at the possibility of the company's auditors being held liable for your loss. In the case With v O' Flanogan (1936) it was decided that " For deceit to be committed there must be a false representation of fact. The representation must generally be a positive act made by words, or conduct. The words may be oral or written. " It also says, " If a statement of fact was made which was true at the time, but later became false a failure to correct the misrepresentation is actionable.

" This does show that the auditors should be liable for your loss as the auditors report spoke glowingly about the companies financial position and yet after only a few months it become clear that the directors were involved in fraud. Even if at the time of the report was correct a failure to correct this once it was not true also means the auditors could be liable. However when dealing with a case against the company's auditors a past case that should be looked at is Caparo Industries plc v Dickman (1990).

This was a case were the plaintiff purchased shares after seeing the auditors report, however the special relationship that the court said had to exist in Hedely Byrne & Co Ltd v Heller & Partners did not work in this case as the auditors have only a relationship with the company. The courts held that annual audited accounts were the fulfilment of a statutory obligation the purpose of which was to enable the shareholders to take decisions about the management of the company; it was not intended to be the basis of an investment decision.

There are also more cases that uphold the fact that auditors are not liable for investment decisions based on there reports these cases include Al Saudi Banque v Pixley (1989) Al Nakib Investments (1990) and Mariola Marina Corporation v Loyd's Register. As all these past cases have found that auditors are not liable for investment decisions in companies I don't think that the auditors would not be found liable for your loss. In conclusion when looking at previous cases I would say that it would not be likely that perusing a case against the barman the solicitor, or the companies auditors will result in them being found liable for your loss.

The barman is not liable as the advice is given in a social situation and according to Stocker L. J. in Chaudry v Prabhakar (1988) the defendant would not be liable. The solicitor would be the most likely to be liable for your financial loss although he does not posses expert knowledge in this area, which is stated in Hedely Byrne & Co Ltd v Heller & Partners and the auditors would not be liable for your loss as the reports are not meant for potential investors. This is also stated in Hedely Byrne & Co Ltd v Heller & Partners.