Mutual Life & Citizens' Assurance Co Ltd v Evatt

Mutual Life & Citizens' Assurance Co Ltd v Evatt - [1968] HCA 74 - HCA 1968 case summary — Zoe

There are two actions: in the first there is but one defendant, the appellant the assurance company; in the second there are two defendants, both the present appellants. In each case the substantial structure of the respondent's pleading alleging his cause of action is the same, though that in the second action contains more than one count, one against the holding company, another against the assurance company and a third against the appellants jointly. In each action demurrers were entered by the appropriate appellant or appellants to the respective count of the respondent's declaration, the demurrer point being the failure of the count to disclose a cause of action. In the second action, the appellants pleaded as well as demurred and in three pleas, the sixth, seventh and eighth, each in the same terms but respectively pleaded by the assurance company and the holding company severally and by the appellants jointly, alleged that the information and advice alleged by the respondent to have been given by the respective appellant or the appellants was "a representation or assurance made or given concerning or relating to the conduct, credit, trade or dealings of H. G. Palmer to the intent or purpose that H. G. Palmer might obtain credit or money", that such representation or assurance was not made in writing signed by the appellant or appellants as appropriate and that the action was in each case brought to charge that appellant or those appellants upon or by reason of such representation or assurance. This plea was based on s. 10 of the Usury, Bills of Lading, and Written Memoranda Act, 1902 N.S.W., which reproduces Lord Tenterden's Act, the Statute of Frauds Amendment Act 1828 U.K.. To these pleas the respondent demurred, the demurrer point being that s. 10 "does not apply where the plaintiff's cause of action is founded on breach of a duty of care". Joinders in demurrer having been filed, the demurrers were heard by the Supreme Court (Court of Appeal Division), that in the first action on one occasion [1] , and those in the second action on a subsequent occasion [2] : but on each occasion by a bench comprised of the same judges. The Supreme Court ruled that judgment should be entered for the respondent on all the demurrers. This Court granted leave to appeal in each case and the matters on appeal to this Court have now been argued together.

[22]

Lord Reid, in his speech in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [3] , in my respectful opinion, convincingly demonstrated that, Le Lievre v. Gould [1] and Candler v. Crane, Christmas & Co. [2] apart, no decision of an English court, properly understood, denied the possibility of an action for breach of a duty of care in the utterance of words, whether by way of giving information or of giving advice, or both. I would respectfully adopt his Lordship's recital and analysis of the earlier decisions of the English courts including those in Le Lievre v. Gould [1] and Candler v. Crane, Christmas & Co. [2] , and I find no need to go over that ground in any respect. It is, to my mind, abundantly clear that Derry v. Peek [4] did not decide that no action could be brought at law upon an incorrect statement whether by way of information or by way of advice made in breach of a duty of care, or that there were no circumstances short of contract or fiduciary relationship in which a duty to be careful in utterance could arise. Derry v. Peek [4] was decided by the House of Lords in 1889 and there was built upon it the view that no action at law would lie in any circumstances for incorrect but honest statement. This view culminated in Candler v. Crane, Christmas & Co. [2] founded proximately upon Le Lievre v. Gould [1] . I respectfully agree with Lord Reid and those members of the House of Lords who agree with him in this respect in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1] that the former of those cases was not well decided and that at least the ratio decidendi of the latter was insupportable, though those who decided these cases felt that they were committed thus to decide because of what became the commonly held view of the common law as a result of Derry v. Peek [2] . It seems to me that this view, despite the clear and repeated indications to the contrary by Lord Haldane, derived from the error of treating the course of reasoning in that case as constituting authority for more than the case itself decided on its own facts and circumstances bearing in mind the fundamental conclusion of law upon which the order of the Court was grounded. Derry v. Peek [2] decided no more than that in an action at law for deceit, dishonesty must be proved and that carelessness in making the incorrect statement will not establish dishonesty for the purpose of such an action. Carelessness in this use of the term is not of course synonymous with negligence. Also, Derry v. Peek [2] was decided in the area of representation which, to my mind, is not in exactly the same area of discourse as utterance in a special relationship, though such utterance is sometimes spoken of as representation or misrepresentation, as the case may be. In this connexion, passages in Banbury v. Bank of Montreal [3] are of some interest.

[38]

However, in the case of utterance, though the duty will arise out of circumstances which create the requisite relationship, there is one distinguishing feature to which I ought to advert, a feature which is not present or rather certainly not universally present in the case of the relationships which give rise to a duty of care in the case of physical acts or omissions. The information or advice will be sought or accepted by a person on his own behalf or on behalf of another identified or identifiable person or on behalf of an identified or identifiable class of persons. The person giving the information or advice must do so willingly and knowingly in the sense that he is aware of the circumstances which create the relevant relationship. He must give the information or advice to some identified or identifiable person in the given circumstances of the implications of which he is, or ought to be, aware. The identity and position of the recipient of the utterance form part of the relevant circumstances. It is this seemingly "bilateral" aspect of the necessary relationship which, it seems to me, inclines the mind to the use of the expression "assumption of responsibility" to describe the source of the duty of care and to the employment of concepts of consensus and contract, in the explanation of the emergence of the duty of care in utterance. But, though the willingness of the speaker to give or the giving of the information or advice can be described as an acceptance of the duty to be careful in the sense that having in the circumstances a choice to speak or to remain silent, or perhaps to speak with reservation (a matter to which I will later revert), the speaker elects to speak and thus by his voluntary act attracts the duty to be careful both in preparing himself for what he says and in the manner of saying it, yet, in my opinion, the resulting cause of action is tortious and in no sense arises ex contractu, or by reason of any consensus, or any assumption of responsibility by the speaker. The duty of care, in my opinion, is imposed by law in the circumstances.

[46]

It seems to me, therefore, that whenever a person gives information or advice to another, whether that information is actively sought or merely accepted by that other upon a serious matter, and particularly a matter of business, and the relationship of the parties arising out of the circumstances is such that on the one hand the speaker realizes or ought to realize that he is being trusted, particularly if he is thought by the other to have, or to have particular access to, information or to have a capacity or opportunity to exercise judgment or both as to the matter in hand, to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to seek or accept and in either case to act upon that information and advice the speaker, choosing to give the information or advice in such circumstances, comes under a duty of care both to utilize with reasonable care the information and sources of information at his disposal and to employ with reasonable care what capacity he has for judgment in relation to the matter and to exercise reasonable care in the expression of what he is prepared to convey by way of information or advice. If he chooses not to speak, he is not merely because of the relationship bound to make any inquiries. But it does mean that, if he is being trusted because of the sources of information at his disposal, and he speaks on the footing of the information which might then be available to him, he will be in breach of his duty if he does not utilize these sources of information before speaking and if his communication is incorrect. But, it should be emphasized, the obligation of the speaker is no more than to use reasonable care in the circumstances. He is not in breach merely because his communicated information is incorrect or his proffered advice erroneous. Speaking in the relationship whose elements I have indicated does not mean that he warrants the accuracy of his utterance. He is merely required to exercise reasonable care in preparing himself to speak in conveying information, in exercise of his judgment and in expressing the information or advice which he chooses to convey.

[73]

The declaration sufficiently alleges, as I think, as a fact and not merely as a conclusion from other facts, that the appellant had at its hand the requisite information to enable it to give the respondent the information and advice he wanted as to the financial stability of H. G. Palmer: and that the appellant knew that the respondent intended to act upon the information and advice he received. The information and advice was clearly upon a matter of business and of its nature involved both objective facts and subjective interpretations of them, calling no doubt for the exercise of judgment whether what resulted be called information or advice. I think the pleading should be approached on the footing that there was no benefit arising to any of the appellants from either the act of the respondent in retaining his investments in H. G. Palmer or from his act in investing further funds in that company. Consequently, as I have already indicated, the giving of the information or advice should be regarded as being wholly gratuitous. Now could it be inferred that the appellant knew or ought to have known that it was being trusted by the respondent to give to him the best information and advice it reasonably could? I have come to the conclusion, I am bound to say not without some lingering doubt, but on the whole with sufficient firmness, that such an inference could be made from the material in the declaration. The assumption from the pleading is that the respondent describing himself to the appellant as one with money already invested and as contemplating further investment in a company of whose affairs the appellant had sufficient knowledge in hand or at hand to enable it to know of the financial stability of that company, asked as to that stability with a view, as the appellant is said to have known, to determining his course of action in relation to investment in that company. I think it could be inferred that the appellant at least ought to have realized that it was being trusted in relation to its knowledge, actual or potential, and as to its judgment upon that information as to the financial stability of H. G. Palmer. Again, the identity and capacity of the officer or officers of the appropriate appellant whose acts are relied upon in satisfaction of the assumptions of the pleading may well prove critical at the trial: but, again, that is not a matter which presently arises.

[82]

Lord Reid pointed out in the Hedley Byrne Case [2] that claims for alleged negligence in the spoken or written word do not admit of decision by a simple application of the principle of Donoghue v. Stevenson [3] . In many cases, if it be asked whether, in reference to the giving of information or advice, the plaintiff was the defendant's neighbour, in the sense that the defendant could reasonably foresee that if he were to give information or advice carelessly he would be likely to cause loss to the plaintiff, a difficult question of remoteness will arise. This is not the case here, however, for the allegation is that the information and advice were given by the defendant The Mutual Life & Citizens' Assurance Co. Ltd. to the plaintiff directly and in answer to a request directly made, the defendant knowing that the plaintiff intended to act upon the information and advice in deciding whether to retain investments which he held in H. G. Palmer (Consolidated) Ltd. and whether to invest further in that company. The difficulty of the case arises from another point of difference between words and acts considered as causes of loss. It is in the nature of words that they cause nothing save by their influence upon the mind of a person whose ears or eyes they reach. Between the words and any loss they may be said to cause to a hearer or reader there must always be the hearer's or reader's decision to follow the course of conduct which proves injurious. Accordingly the question whether the words are properly to be described as a cause of the loss depends upon their potency as an influence upon that decision; and the question whether the speaker or writer of the words could reasonably have foreseen a likelihood that his statement would cause the other to pursue the potentially injurious course becomes a question whether it was reasonable for that other to understand and accept the statement as intended to relieve him, so far as an exercise by the speaker or writer of reasonable care and skill in inquiry (as to facts) or judgment (as to opinions) would do it, from having to bear any loss that a decision to act in reliance upon the statement may bring about. But such an intention is not reasonably to be inferred unless the circumstances of the statement supply a context of the kind which normally characterizes matters of business. In the Hedley Byrne Case [1] various expressions are used to make this clear. In particular, reference is made to the speaker or writer undertaking, or agreeing to accept, "responsibility" for the carefulness and the skilfulness with which the words are uttered; and this I take to mean that he shows that he is engaged in communication on a business level, intending to stand behind what he says or writes with the same accountability for the consequences of any lack of care or skill in checking facts or forming judgments as if he were being paid. Otherwise it would be unreasonable, according to ordinary human experience, for the hearer or reader to suppose that he was being relieved to any extent of the task of making up his own mind about the facts and about matters of opinion, and making a decision wholly upon his own responsibility.

[92]

the representation in equity is equivalent to a contract and very nearly coincides with a warranty at law; and in order that a person may avail himself of relief founded on it he must show that there was such a proximate relation between himself and the person making the representation as to bring them virtually into the position of parties contracting with each other. Whether the relevant sphere of law be that of implied warranty, of responsibility in equity, or of liability in tort for want of care, the question whether a person who sought the information or advice was entitled as a matter of law to have care exercised by the person from whom he sought it is thus to be decided by considering whether the circumstances made it reasonable for the inquirer to suppose that the other was replying with an intention of accepting the full responsibility that is ordinarily appropriate to a business transaction. Just as words which would otherwise create a contract will be held to produce no legal results if accompanied by an expression of intention to keep to the field of informal and merely friendly arrangement, as in Rose and Frank Co. v. J. R. Crompton & Bros. Ltd. [1] , so, as the actual decision in the Hedley Byrne Case [2] shows, words giving information or advice accompanied by a disclaimer of responsibility which shows a like intention will be held not to have the legal consequences which they would have had if uttered in other circumstances. This is the extreme case of the class where the circumstances show that the person to whom information or advice is given could not reasonably have relied upon a belief that the other was dealing with him on a basis where questions of legal responsibility are relevant. Less extreme illustrations may be given also. Just as words which otherwise would create a contract (because the speaker or writer receives a quid pro quo) are held not to do so if the parties are dealing with one another on a plane where there is really no intention of altering legal relations - as in the case of purely domestic arrangements (see Balfour v. Balfour [3] ; Cohen v. Cohen [4] ; Gage v. King [5] ; In re Bishop; National Provincial Bank v. Bishop [6] ), or of casual discussions (see Booker v. Palmer [7] ), or of many kinds of arrangements with respect to government assistance (see Administration of Papua and New Guinea v. Leahy [8] ) - so words giving information or advice without any quid pro quo will be held to entail no legal responsibility for carelessness if the correct conclusion from the circumstances be that the person who acted upon them could not reasonably have understood them as uttered, as one might say, in the way of business, or (to express it more generally) as uttered on a plane to which legal liability naturally belongs. 1. (1871) L.R. 13 Eq. 79, at p. 97. 2. [1914] A.C., at pp. 971-972. 3. [1925] A.C. 445. 4. [1964] A.C. 465. 5. [1919] 2 K.B. 571. 6. (1929) 42 C.L.R. 91. 7. [1961] 1 Q.B. 188. 8. [1965] Ch. 450. 9. [1942] 2 All E.R. 674. 10. (1961) 105 C.L.R. 6.

[95]

The count implies plainly enough that the defendant is a life assurance company and it expressly alleges that the plaintiff is a policy holder therein. It depicts the policy holder as seeking from his assurance company information and advice as to the present and prospective soundness of H. G. Palmer (Consolidated) Ltd. as a company in which to invest money, and the assurance company as giving the information and advice knowing that the policy holder intended to act upon it. There is no allegation that the defendant carried on any business, or followed any general practice, of giving information or advice of this kind to its policy holders; but by alleging that the inquiry was made from and answered by the defendant itself, i.e., as a corporate body, with corporate knowledge that the policy holder intended to act upon its statement in adventuring his money, the count puts the plaintiff's case as high as that the information and advice were given by an agent or agents of the defendant acting in the course of his or their employment or within the ostensible scope of his or their authority, and that the giving of the information and advice was an act which the defendant might possibly be authorized by its constitution to do: see the cases cited in Halsbury's Laws of England, 3rd ed., vol. 6, p. 422, par. 818. Then the count alleges, in substance, that the defendant and H. G. Palmer (Consolidated) Ltd. were associated together in the sense that they were both subsidiaries of a third company; that the association between them gave the defendant in fact special facilities for obtaining information concerning the financial affairs of H. G. Palmer (Consolidated) Ltd. and placed the defendant in a position to give the plaintiff reliable advice concerning the financial stability of that company; that the plaintiff knew all these things; and that the defendant supplied the information and advice without any disclaimer of responsibility. (Here I have accepted the meaning which the plaintiff's counsel put upon the allegation that the defendant "accepted the responsibility" of supplying the plaintiff with the information and advice.) It seems to me that nothing need be added to these allegations to show that the information and advice were given in circumstances in which the only reasonable conclusion for both parties was that the same care on the part of the defendant was demanded as if a contract for the giving of the information and advice had existed between them, and in which it was reasonable for the plaintiff to be induced to keep and increase his investments in H. G. Palmer (Consolidated) Ltd. by the defendant's implied assurance that it had taken that care. The count therefore seems to me to allege a cause of action according to the law as explained in Hedley Byrne [1] , though I am not prepared to say that substantial amendments might not be made with advantage.

[100]

Finally there are cases concerning the giving of advice by a banker as to the financial position of his customer, notably Parsons v. Barclay & Co. Ltd. [7] and Robinson v. National Bank of Scotland Ltd. [8] . The basis of these decisions, I think, is that in view of the degree of toil and trouble that would be involved for a banker if he were to accept a responsibility to be careful as well as honest in responding to the multitudinous inquiries of this kind that everyone knows are constantly made of bankers, it could not be reasonable for an inquirer to suppose that the banker was accepting so onerous an obligation. "Is he then expected", asked Pearson L.J. in the Court of Appeal in the Hedley Byrne Case [1] , "in business hours in the bank's time, to expend time and trouble in searching records, studying documents, weighing and comparing the favourable and unfavourable features and producing a well-balanced and well-worded report? That seems wholly unreasonable." Lord Hodson [2] adopted the statement. Such a case as that which is now before us seems to me to be radically different. It is surely not sufficient to say that there is a resemblance between an inquiry made of one financial institution and an inquiry made of another. If we assume, as we must for the present purposes, that all the allegations in the first count are true the plaintiff's request for information and advice was a request to use the special means which the defendant possessed for the purpose of providing reliable guidance for the plaintiff in relation to his existing and contemplated investments in H. G. Palmer (Consolidated) Ltd. It faced the defendant with a choice between answering with as serious a sense of responsibility as a contractual relationship would have required, answering with a warning that responsibility had not been accepted, and refusing to answer at all (cf. per Lord Reid [3] ). It seems to me that if all the facts here alleged are proved it will necessarily follow that the plaintiff was justified in inferring, from the defendant's action in giving him information and advice on the matter he put to it, that the defendant was choosing the first of the three courses above mentioned.

[112]

where it is plain that the party seeking information or advice was trusting the other to exercise such a degree of care as the circumstances required, where it was reasonable for him to do that, and where the other gave the information or advice when he knew or ought to have known that the inquirer was relying on him. He added, A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to give the information or advice sought: or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require: or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require. On the other hand Lord Morris seems to have taken a somewhat more restricted view. He said that he considered [1] : that it should now be regarded as settled that if someone possessed of a special skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies upon such skill, a duty of care will arise. The fact that the service is to be given by means of or by the instrumentality of words can make no difference. Furthermore, if in a sphere in which a person is so placed that others could reasonably rely upon his judgment or his skill or upon his ability to make a careful inquiry, a person takes it upon himself to give information or advice to another person who, as he knows or should know, will place reliance upon it, then a duty of care will arise. Lord Hodson [2] said that he did not think it was possible to catalogue the special features which must be found to exist before the duty of care will arise in a given case, but he agreed with the observations of Lord Morris on this point. Lord Devlin [3] enunciated the proposition that "wherever there is a relationship equivalent to contract, there is a duty of care". He then proceeded [3] : Such a relationship may be either general or particular. Examples of a general relationship are those of solicitor and client and of banker and customer. For the former Nocton v. Lord Ashburton [4] has long stood as the authority and for the latter there is the decision of Salmon J. in Woods v. Martins Bank Ltd. [5] which I respectfully approve. There may well be others yet to be established. Where there is a general relationship of this sort, it is unnecessary to do more than prove its existence and the duty follows. Where, as in the present case, what is relied on is a particular relationship created ad hoc, it will be necessary to examine the particular facts to see whether there is an express or implied undertaking of responsibility. Finally, Lord Pearce said [6] : To import such a duty the representation must normally, I think, concern a business or professional transaction whose nature makes clear the gravity of the inquiry and the importance and influence attached to the answer. It is conceded that Salmon J. rightly found a duty of care in Woods v. Martins Bank Ltd. [5] but the facts in that case were wholly different from those in the present case. 1. [1964] A.C., at p. 486. 2. [1964] A.C., at pp. 502-503. 3. [1964] A.C., at p. 514. 4. [1964] A.C., at p. 530. 5. [1964] A.C., at p. 530. 6. [1914] A.C. 932. 7. [1959] 1 Q.B. 55. 8. [1964] A.C., at p. 539. 9. [1959] 1 Q.B. 55.

[130]

There was a duty of honesty. The great question however, is whether there was a duty of care. The bank need not have answered the inquiry from the National Provincial Bank. It appears, however, that it is a matter of banking convenience or courtesy and presumably of mutual business advantage that inquiries as between banks will be answered. The fact that it is most unlikely that the bank would have answered a direct inquiry from Hedleys does not affect the question as to what the bank must have known as to the use that would be made of any answer that they gave but it cannot be left out of account in considering what it was that the bank undertook to do. It does not seem to me that they undertook before answering an inquiry to expend time or trouble "in searching records, studying documents, weighing and comparing the favourable and unfavourable features and producing a well-balanced and well-worded report". (I quote the words of Pearson L.J. [1] .) Nor does it seem to me that the inquiring bank (nor therefore their customer) would expect such a process. This was, I think, what was denoted by Lord Haldane in his speech in Robinson v. National Bank of Scotland Ltd. [2] , when he spoke of a "mere inquiry" being made by one banker of another. In Parsons v. Barclay & Co. Ltd. [3] , Cozens-Hardy M.R. expressed the view that it was no part of a banker's duty, when asked for a reference, to make inquiries outside as to the solvency or otherwise of the person asked about or to do more than answer the question put to him honestly from what he knew from the books and accounts before him. There was in the present case no contemplation of receiving anything like a formal and detailed report such as might be given by some concern charged with the duty (probably for reward) of making all proper and relevant inquiries concerning the nature, scope and extent of a company's activities and of obtaining and marshalling all available evidence as to its credit, efficiency, standing and business reputation. There is much to be said, therefore, for the view that if a banker gives a reference in the form of a brief expression of opinion in regard to credit-worthiness he does not accept, and there is not expected from him, any higher duty than that of giving an honest answer. Lord Hodson also dealt with this case and at the conclusion of his speech where, after quoting from Robinson v. National Bank of Scotland Ltd. [4] , he said [5] : Since no detailed reasons were given by the House for the view that a banker's reference given honestly does not in the ordinary course carry with it a duty to take reasonable care, that duty being based on a special relationship, it will not, I hope, be out of place if I express my concurrence with the observations of Pearson L.J. who delivered the leading judgment in the Court of Appeal and said [1] : "Apart from authority, I am not satisfied that it would be reasonable to impose upon a banker the obligation suggested, if that obligation really adds anything to the duty of giving an honest answer. It is conceded by Mr. Cooke that the banker is not expected to make outside inquiries to supplement the information which he already has. Is he then expected, in business hours in the bank's time, to expend time and trouble in searching records, studying documents, weighing and comparing the favourable and unfavourable features and producing a well-balanced and well-worded report? That seems wholly unreasonable. Then, if he is not expected to do any of those things, and if he is permitted to give an impromptu answer in the words that immediately come to his mind on the basis of the facts which he happens to remember or is able to ascertain from a quick glance at the file or one of the files, the duty of care seems to add little, if anything, to the duty of honesty. If the answer given is seriously wrong, that is some evidence - of course, only some evidence - of dishonesty. Therefore, apart from authority, it is far from clear, to my mind, that the banker, in answering such an inquiry, could reasonably be supposed to be assuming any duty higher than that of giving an honest answer."

[158]

My Lords, I agree with Stirling J. that, as matter of fact, the appellants did honestly believe in the truth of the representation upon which this action of deceit is based. It is by no means clear that the learned judges of the Court of Appeal meant to differ from that conclusion; but they seem to have held that a man who makes a representation with the view of its being acted upon, in the honest belief that it is true, commits a fraud in the eye of the law, if the court or a jury shall be of opinion that he had not reasonable grounds for his belief. I have no hesitation in rejecting that doctrine, for which I can find no warrant in the law of England. Lord Herschell, referring to the passage cited in Cann v. Willson [1] from the judgment of Cotton L.J., said [2] : About much that is here stated there cannot, I think, be two opinions. But when the learned Lord Justice speaks of a statement made recklessly or without care whether it is true or false, that is without any reasonable ground for believing it to be true, I find myself, with all respect, unable to agree that these are convertible expressions. To make a statement careless whether it be true or false, and therefore without any real belief in its truth, appears to me to be an essentially different thing from making, through want of care, a false statement, which is nevertheless honestly believed to be true. And it is surely conceivable that a man may believe that what he states is the fact, though he has been so wanting in care that the Court may think that there were no sufficient grounds to warrant his belief. It is true that Lord Bramwell did make an observation going beyond what Derry v. Peek [3] decided. After saying that actual fraud must be established in a case like this, his Lordship said: "To found an action for damages there must be a contract and breach, or fraud." [3a] However, every general observation must be read in its context and there is nothing whatever to suggest that Lord Bramwell had in mind expressly to deny that damages could be recovered for negligent mis-statement. Lord FitzGerald said [4] : A director is bound in all particulars to be careful and circumspect, and not, either in his statements to the public or in the performance of the duties he has undertaken, to be careless or negligent, or rash. A director being so bound, it can hardly be thought that his Lordship was confining the duty of care to a contractual relationship. Lord Halsbury said [5] : The learned judge who saw and heard the witnesses acquitted the defendants of intentional deceit, and although the Court of Appeal held them liable, overruling the decision of the learned judge below, they appear to me to have justified their decision upon grounds which I do not think tenable, namely, that they, the directors, were liable because they had no reasonable ground for the belief which nevertheless it is assumed they sincerely entertained Nevertheless, if, as I have said, the facts are reconcilable with the innocence of the directors, and with the absence of the mens rea which I consider an essential condition of an action for deceit, the mere fact of the inaccuracy of the statement ought not to be pressed into constituting a liability which appears to me not to exist according to the law of England. 1. (1888) 39 Ch. D. 39. 2. (1889) 14 App. Cas. 337. 3. (1887) 37 Ch. D., at p. 568. 4. (1889) 14 App. Cas., at p. 345. 5. (1888) 39 Ch. D. 39. 6. (1889) 14 App. Cas., at p. 361. 7. (1889) 14 App. Cas. 337. 8. (1889) 14 App.Cas., at p. 347. 9. (1889) 14 App. Cas., at pp. 358, 359. 10. (1889) 14 App. Cas., at p. 344.

[168]

An innocent representation per se constitutes no cause of action. If there existed a duty, an action lies for negligence and breach of duty, and in that action the fact that there was misrepresentation, although innocent, is material. But an action cannot be maintained upon an innocent representation simpliciter. It is maintained upon the breach of duty. The innocent misrepresentation is not the cause of action, but evidence of the negligence which is the cause of action. - The italics are mine. In the same case Lord Finlay L.C. said [2] : a banker may, as such, give advice on investments to a customer who consults him, or, indeed, to any one who comes to him for advice, and whom he chooses to advise. If he undertakes to advise, he must exercise reasonable care and skill in giving the advice. He is under no obligation to advise, but if he takes upon himself to do so, he will incur liability if he does so negligently. - The italics are mine. Lord Atkinson said [3] : Well, it was urged that Canadian banks and their officers in this matter of advising their customers as to investments are in the position of skilled persons, such as doctors and lawyers, who, if they undertake, even gratuitously, to treat or advise a person, are bound to use the skill and knowledge they have, or profess to have, and that if they omit to do so they are guilty of gross negligence: Shiells v. Blackburne [4] ; Coggs v. Bernard [5] ; 1 Smith's Leading Cases, 12th ed., p. 191 Mr. Ogden Lawrence contended on behalf of the respondents that the principle of Coggs v. Bernard [5] , never could apply to the mere giving gratuitously of advice. No doubt in most, if not all, of the authorities mentioned in the notes to that case in 1 Smith's Leading Cases, pp. 172, 188, et seq., something amounting to agency existed between the person for whom the gratuitous service was performed and the person who rendered it; but in the case of persons who possess or purport to possess skill and knowledge in some art or profession, such for instance as doctors or lawyers, I do not think it can be said that the giving of advice is not an act done for the patient or client advised, as the case may be I do not, as at present advised, think that the acts done, or to be done, can be confined, at all events in the case of skilled persons, to physical as distinguished from mental acts. Owing to the view I take on the other issues in the case it is not necessary for me to express a definite opinion on this point, and I abstain from doing so. These observations were made in the case where the points being discussed were, whether it was part of a banker's business to advise the plaintiff as to his investments, and, whether Galletly, the branch manager, had the authority of the bank to advise the plaintiff. The decision on these points was [1] : that there was no evidence upon which the jury could reasonably find that Galletly had authority to advise the plaintiff as to his investments or that the bank owed any duty to the plaintiff to advise him carefully or at all. The second matter was not, however, disposed of by the adoption of the general proposition, supported by Le Lievre v. Gould [2] to the effect that negligent advice causing loss can, in the absence of a contractual obligation to take care, be disregarded as not giving rise to any cause of action. 1. (1889) 14 App. Cas. 337. 2. [1964] A.C. 465. 3. [1918] A.C. 626. 4. [1918] A.C., at p. 713. 5. [1918] A.C., at p. 654. 6. [1918] A.C., at pp. 682-683, 689-690. 7. (1789) 1 H.Bl. 158 [126 E.R. 94]. 8. (1703) 2 Ld. Raym. 909 [92 E.R. 107]. 9. (1703) 2 Ld. Raym. 909 [92 E.R. 107]. 10. [1918] A.C., at p. 627. 11. [1893] 1 Q.B. 491.

[170]

My Lords, the discussion of the case by the noble and learned Lords who took part in the decision appears to me to exclude the hypothesis that they considered any other question to be before them than what was the necessary foundation of an ordinary action for deceit. They must indeed be taken to have thought that the facts proved as to the relationship of the parties in Derry v. Peek [4] , were not enough to establish any special duty arising out of that relationship other than the general duty of honesty. But they do not say that where a different sort of relationship ought to be inferred from the circumstances the case is to be concluded by asking whether an action for deceit will lie. I think that the authorities subsequent to the decision of the House of Lords shew a tendency to assume that it was intended to mean more than it did. In reality the judgment covered only a part of the field in which liabilities may arise. There are other obligations besides that of honesty the breach of which may give a right to damages. These obligations depend on principles which the judges have worked out in the fashion that is characteristic of a system where much of the law has always been judge-made and unwritten. Lord Shaw of Dunfermline said [6] : it should not be forgotten that Derry v. Peek [4] , was an action wholly and solely of deceit, founded wholly and solely on fraud, was treated by this House on that footing alone, and that - this being so - what was decided was that fraud must ex necessitate contain the element of moral delinquency. Certain expressions by learned Lords may seem to have made incursions into the region of negligence, but Derry v. Peek as a decision was directed to the single and specific point just set out. Lord Parmoor said [1] : My Lords, reference was made during the hearing in your Lordships' House to the case of Derry v. Peek [2] . That case decides that in an action founded on deceit, and in which deceit is a necessary factor, actual dishonesty, involving mens rea, must be proved. The case in my opinion has no bearing whatever on actions founded on a breach of duty in which dishonesty is not a necessary factor. 1. [1914] A.C. 932. 2. (1889) 14 App. Cas. 337. 3. [1914] A.C., at p. 947. 4. (1889) 14 App. Cas. 337. 5. [1914] A.C., at pp. 970, 971. 6. (1889) 14 App. Cas. 337. 7. [1914] A.C., at p. 978. 8. (1889) 14 App. Cas. 337.

[195]

The novelty of this case seems to me that the special relationship giving rise to a duty of care which the plaintiff seeks to establish between himself and the defendants will depend, in part, upon proof of a particular relationship between the defendants and Palmer's. This is not, however, an insuperable obstacle to the establishment of a special relationship because if, for instance, a prospective lender to a private company sought the advice of the managing director and principal shareholder about the financial stability of the company in order to decide whether or not to make the loan, it is not difficult to envisage circumstances, outside contract, that would give rise in law to a duty to advise with care if advice were to be given. It is here alleged (1) that the defendants were in a position of special advantage to get and give accurate information about the financial stability of Palmer's and (2) that the defendants elected to advise and accepted the responsibility of advising the plaintiff upon his request for advice about Palmer's; (3) that the defendants advised the plaintiff knowing that he would act upon their advice. As I have said, the pleadings are in need of amendment in order that there may be a proper trial, but it seems to me that we must here take them as they are and that, basically, what has been alleged would, if proved, establish the existence of a duty to take care in giving any advice that was given about the financial stability of Palmer's. It seems to me that every speech in the House of Lords in Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1] supports this conclusion, for all emphasize that a duty to use care in giving advice arises when, in relation to a matter of business concern, one person makes known to another that he is relying upon the other's advice on a matter within the special competence of that other and advice is then given without disclaimer of responsibility. See too W. B. Anderson & Sons Ltd. v. Rhodes (Liverpool) Ltd. [2] . Furthermore if, as has now been established, there is a duty to advise carefully outside contractual or fiduciary relationships, the allegations here would, if proved, give rise to such a duty unless some stopping point can be found such as a limitation that such a duty arises only when advice is given by a person being in business to advise or holding himself out generally as having some special skill to advise. I do not think that such limitations exist. The absence of allegations that it is part of the business of the defendants to advise policyholders or others upon their investments or that the defendants hold themselves out generally as having some special skill to advise upon investments is nevertheless an important consideration here because it throws the plaintiff back upon proof that the advice upon which he relied was given by an officer with authority to commit, and one who did commit, the defendants to the obligation of advising the plaintiff with care. The existence of a special relationship is, therefore, obviously of critical importance in this case to found any duty of care.

[220]

"Apart from authority, I am not satisfied that it would be reasonable to impose upon a banker the obligation suggested" - that is the obligation to take reasonable care - "if that obligation really adds anything to the duty of giving an honest answer. It is conceded by Mr. Cooke that the banker is not expected to make outside inquiries to supplement the information which he already has. Is he then expected, in business hours in the bank's time, to expend time and trouble in searching records, studying documents, weighing and comparing the favourable and unfavourable features and producing a well-balanced and well-worded report? That seems wholly unreasonable. Then, if he is not expected to do any of those things, and if he is permitted to give an impromptu answer in the words that immediately come to his mind on the basis of the facts which he happens to remember or is able to ascertain from a quick glance at the file or one of the files, the duty of care seems to add little, if anything, to the duty of honesty. If the answer given is seriously wrong, that is some evidence - of course, only some evidence - of dishonesty. Therefore, apart from authority, it is far from clear, to my mind, that the banker, in answering such an inquiry, could reasonably be supposed to be assuming any duty higher than that of giving an honest answer." went on [1] : This is to the same effect as the opinion of Cozens-Hardy M.R. in Parsons v. Barclay & Co. Ltd. [2] : "I desire for myself to repudiate entirely the suggestion that when one banker is asked by another for a customer such a question as was asked here, it is in any way the duty of the banker to make inquiries other than what appears from the books of account before him, or, of course, to give information other than what he is acquainted with from his own personal knowledge I think that if we were to take the contrary view we should necessarily be putting a stop to that very wholesome and useful habit by which the banker answers in confidence and answers honestly, to another banker."

At a glance

Court

Decision date

Before

Source

Judgment (227 paragraphs)

Parties