LAWS1114 Lecture 6

Negligent Misstatements

  • Caltex = salient features
  • Gummow J = salient features approach
  • McHugh J = multi-factorial approach
  • Alsopp J = list of salient features/factors

Important: considering control, vulnerability etc.

What’s NOT important whether you call it ‘salient features’ or ‘multi-factorial’.


Two-party cases: direct dealings

The House of Lords decision in Hedley Byrne v Heller [1964] AC 465 was an important development in the law of negligence in the context of pure economic loss. This importance will be discussed in the lecture. Prior to the reasoning in this decision, a person could only recover with respect to a misstatement if: (1) it was fraudulent; (2) the plaintiff was in a contractual relationship with the defendant speaker; or (3) the plaintiff was in a fiduciary relationship with the defendant speaker. In other words, there was no recovery, apart from contract, for a negligent though honest misstatement unless the parties were in a fiduciary relationship.

The House of Lords considered whether some special relationship was required whereby the law should impose a duty in the circumstances.

  • Advice was given without responsibility
  • Not contract – given gratuitously
  • Is reliance reasonable if there is a disclaimer?
  • Held: no duty
  • NB: Lord Reid tried to identify whether there was some special relationship between the defendant merchant bank and the plaintiff advertising agency.
    • Emphasised trust
    • Placed importance on reasonable reliance
  • By the way… reference to the ‘present case’ at page 492 is referring to another case. Not Hedley Byrne
  • NB: Each judge placed importance on assumption of responsibility and reasonable reliance.
  • Lord Morris: If advice is given without responsibility, there is no duty
  • Lord Hodson emphasised reasonable reliance
  • Lord Devlin raised two issues:
    • Whether there was an assumption of responsibility; and
    • Whether there existed a relationship that was equivalent to contract.
    • If the circumstances are equivalent to lots of contractual cases, a duty of care arises.

Mutual Life and Citizens Assurance Company Ltd v Evatt

  • The plaintiff Evatt sought financial advice from two companies about whether to invest in another company.
    • Upon the advice, he invested the company but lost money as a result. Thus, he sued for negligent misstatement.
  • High Court concluded that a duty of care was owed to Evatt.
  • The Privy Council reversed the High Court decision
    • Majority stated a narrower test.
  • Barwick CJ p. 571: ‘first of all’, ‘then’, ‘further’ sets out the Barwick test, which is:
    • There must be knowledge of being trusted;
    • Known reliance; and
    • Reasonable reliance.
  • pp. 572-3: ‘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.’ <— that’s seriously one freaking sentence!
  • If a duty of care arises due to the Barwick test, if the advice is incorrect, that does not necessarily mean there’s a breach.
  • NB: What tends to be very important in later Australian cases is reliance.

Scope of the duty

  • Is the duty limited to professional advisers? No. See Shaddock below.
  • Does the duty of care extend to both information and advice? Yes.
    • According to Barwick CJ in Mutual Life & Citizens Assurance Company Ltd v Evatt (1968) 122 CLR 556, 572:
    • ‘Also, I have not differentiated information and advice in the treatment I have given to the subject matter. I have considered whether each can be the subject of the duty of care, and whether there is any valid reason to distinguish in this connexion between information and advice. After reflection, I can find none which would compel or require a different conclusion in connexion with the one from that drawn in respect of the other. In many instances the distinction between the two is very slight: on occasions "information" spills over and becomes inextricable from "advice": but, even where the separation of the two is quite substantial, I do not think each calls for separate treatment. Incorrect information can cause loss and damage as well as incorrect advice. Inequality in the possession of or capacity to obtain information upon a serious topic or a matter of business can exist as between speaker and recipient as well as it may in the capacity or opportunity to exercise judgment on such topics or matters. The possession of accurate information in a business matter can be as of much consequence as advice about that matter.’
  • Does the duty of care extend to opinions about the future? Yes.
    • According to Barwick CJ in Mutual Life & Citizens Assurance Company Ltd v Evatt (1968) 122 CLR 556, 573:
    • ‘In this connexion, I would observe that it is, in my opinion, incorrect to limit the advice which may carry liability to advice about an existing situation. The exercise of judgment so often involves an element of prognosis. For this reason, the distinction and limitations which form the basis of the minority judgment in the Supreme Court in this case are, in my opinion, irrelevant to the matter which was in hand. It is, in my opinion, no answer to a claim for lack of care in the exercise of judgment that the result of that exercise was an opinion as to the future.’
  • Does the duty of care arise in informal contexts? Computer says no.
  • Does the duty of care arise where there is a disclaimer? A duty might be imposed even though there is some form of a disclaimer (arises out of the circumstances of the case).
    • A duty of care in this context (Hedley Byrne I believe) is imposed by the law. Because of this, you can’t always say that advisers may go scot-free by tacking on a disclaimer.
    • ‘express reservation’: disclaimer

Shaddock & Associates Pty Ltd v Parramatta City Council [No 1]

  • Solicitor contacted the Parramatta City Council by telephone on his client’s behalf in relation to whether the council had any proposals for road-widening in a particular area. On the telephone, this unidentified officer said no. This advice was wrong. There was a road-widening proposal. The solicitor then sought something in writing. The written certificate was supplied, which did not mention any road-widening proposals. The client purchased the land and suffffffered from indigestion. Well, economic loss. We'll save the story about the indigestion for another day.
  • Issues:
    • Was the duty limited to the advice or information provided by a professional? It is not so limited. The High Court also rejected the Privy Council decision of Evatt
    • Did a duty of care arise in respect of the telephone conversation? No duty arose. It was unreasonable to rely on the telephone conversation with an unidentified person.
    • Did a duty arise in respect of the written certificate? Yes, a duty arose.

Statements made to the public at large – San Sebastian v The Minister

  • Involved what was alleged to be a proposed redevelopment of the area of Woolloomooloo. Some dude said that redevelopment would definitely happen. The plaintiffs were property developers who purchased land in Woolloomooloo. The Council abandoned the plans afterwards and the property developers suffered a loss. They sued The Minister for negligence. Documents were produced for the public at large
  • All of the judges said no. duty. was. owed.
  • Joint judgment – top of p. 357 – see what they say about volunteering information. (even if information is volunteered, a duty may arise)
    • Concluded that no such representation made (at pp. 359-360)
  • San Sebastian test: p. 358 – somewhere … I think I heard ‘second paragraph’
    • That the alleged representation was made; and
    • That there had to be an intention to induce reliance
  • There must be:
    • An intention
    • To induce reliance
    • Through a representation
  • ‘Just get this down’ moment – under this test, you look at whether there was an intention by the defendant to induce the plaintiff either individually or as a member of a limited class to rely on the representation.
  • Justice Brennan reformulates the Barwick test
    • Note what he says about causation
    • His reasoning is that you do need to have some intention to induce to get a causal link between a plaintiff and a defendant

Three-party cases: Indirect relationships – Esanda Finance Corporation Ltd v Peat Marwick Hungerfords

  • Auditor Peat Marwick Hungerfords was engaged by Excel Ltd to undertake the audit of Excel’s financial statements. Auditors gave an unqualified opinion (ie. that everything was a-okay). Excel took this unqualified opinion to Esanda to get finance.
  • Sole question: whether Esanda’s statement of claim disclosed a duty of care
  • The High Court in separate judgments concluded no.
  • NB: Justice Brennan refers to Lord Morris in Hedley Byrne, then to Barwick CJ in MLC v Evatt, then to San Sebastian then restates what Barwick states. Then refers to Caparo test.
    • Concludes: ‘in every case it is necessary for the plaintiff to allege and prove that the defendant know or ought reasonably to have known that the information or advice would be communicated to the plaintiff, either individually or as a member of an identified class, that the information or advice would be so communicated for a purpose that would be very likely to lead the plaintiff to enter into a transaction of the kind that the plaintiff does enter into and that it would be very likely that the plaintiff would enter into such a transaction in reliance on the information or advice and thereby risk the incurring of economic loss if the statement should be untrue or the advice should be unsound.’
  • The other judges in Esanda did refer to the San Sebastian test (‘intention to induce’)

Current Australian position – Tepko Pty Ltd v Water Board

  • An interesting application of the Barwick test according to Hinchy.
  • All judges applied the Barwick test but we have four in majority, three in dissent (McHugh, Kirby and Callinan JJ)
    • Majority had no doubt that no duty was owed
    • Those in dissent had no doubt that a duty was owed.
      • Relied heavily upon the fact that the Water Board was a statutory authority that had a monopoly over the information.
      • Took a narrow approach
  • Plaintiff was a property developer and he wanted to sub-divide land. This particular area did not have water supply. Before the property could be subdivided, water work had to be done. The plaintiff would be liable for the cost. The plaintiff’s bank was ‘becoming uncomfortable’ so the bank wanted a costs estimate about putting this water. It was a policy of the Water Board not to give costs estimates at this stage. The plaintiff went to the relevant minister and asked if the Minister could do anything about it. The Water Board gave a ball park cost estimate of $2.5 million to the Minister. Bank was concerned and put the plaintiff’s company in receivership. The final cost was something like $803,000. The plaintiff sued alleging that there was a misstatement in the estimate.
  • [47] of joint majority – reference to Barwick CJ in Evatt – issue of known reliance and reasonable reliance
    • No known reliance on behalf of the Water Board that the estimate would be used in this way.
    • Any reliance on a ball park figure was unreasonable.
    • Thus, no duty was owed.
  • Those in dissent placed emphasis on the fact that there was a statutory authority
    • [167] the respondent had a monopoly on the information
  • It is quite clear that the Barwick test has been taken on by our High Court. The application may differ though. We are not suggesting that the San Sebasitan intention test is bad law.