Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]

[1964] AC 465 · House of Lords · United Kingdom

Summary

Opened the door to recovery for pure economic loss in tort outside contract; foundational for professional negligence claims affecting agricultural finance, banking, and insurance sectors.

Facts

Hedley Byrne, an advertising agency, asked its bank for a reference on a potential client. The bank gave a favourable reference but included a disclaimer of responsibility. Relying on the reference, Hedley Byrne extended credit and suffered a loss when the client defaulted.

Procedural History

Claim for pure economic loss dismissed at first instance; Court of Appeal allowed the appeal; House of Lords allowed a further appeal but introduced the concept of liability for negligent misstatement.

Issue

Whether a duty of care can arise for purely economic loss caused by a negligent misstatement even in the absence of a contractual relationship.

Held

A duty of care may arise when one party voluntarily assumes responsibility to give information or advice to another, and the other reasonably relies on it, but the disclaimer in this case negated liability.

Ratio Decidendi

A duty of care in respect of pure economic loss may be established where (1) there is a special relationship based on an assumption of responsibility, (2) the claimant reasonably relies on the statement, and (3) the loss is a foreseeable consequence of negligence.

Reasoning

The House of Lords departed from the previous orthodoxy that recovery for pure economic loss required contractual or fiduciary proximity. Lord Devlin reasoned that 'a reasonable man... knows that he is being trusted' and that such a special relationship creates a duty of care.

Plain-English Explanation

If a bank gives you a financial reference about a customer and you rely on it to give that customer credit, the bank can be held responsible if the reference was negligently prepared, unless the bank explicitly says it is not responsible.

Underlying Concepts

  • Pure economic loss
  • Negligent misstatement
  • Assumption of responsibility
  • Proximity in tort
  • Disclaimers

Precedents Applied

  • Nocton v Lord Ashburton [1914] AC 932
  • Candler v Crane, Christmas & Co [1951] 2 KB 164

Later Treatment

  • Caparo Industries plc v Dickman [1990]
  • Spring v Guardian Assurance [1994]
  • Williams v Natural Life Health Foods [1998]

Significance

Opened the door to recovery for pure economic loss in tort outside contract; foundational for professional negligence claims affecting agricultural finance, banking, and insurance sectors.

Related Cases

Exam Tips

Map the evolution from Derry (fraud) → Hedley Byrne (negligence) → Caparo (three-stage test). Consider how agricultural lenders use this framework when providing credit references for farm machinery finance.

Sources