Introduction

In fact, in this case there are three sources of disorientation; three ideas used as an aid to navigation here and elsewhere, but all mistaken. The first is the notion that actions based on Hedley Byrne belong to the law of negligence and are there­fore somehow based on the neighbour principle enunciated by Lord Atkin in Donoghue v Stevenson? The second is the idea that the distinction between tort and contract is a distinction between an area of law in which obligations are imposed and one in which obligations are assumed. The third confusion is the belief that promises or agreements are legally binding only if obligations are reciprocated, ie the notion that legally binding agreements require consideration. Though all of these ideas have been much criticised, the law is nowhere near close to repudiating them. In fact, they continue to form part of the bedrock of many lawyers' concep­tions of the law of obligations.

Because of this triangulation of misunderstanding, the action for negligent misrepresentation has been and continues to be bewildering. For instance, I have been told (in confidence, naturally) by a district court judge in New Zealand that in the light of the leading authorities in this area, he has no idea how to decide cases of this kind.

Two models have been suggested for understanding the Hedley Byrne action. The first maintains that these cases properly belong to the law of negligence. For this reason, we can refer to this as the negligence model. It comes in two flavours. One holds that liability in this area is firmly based on the neighbour principle and therefore insists that reliance on the notion of assumption of responsibility be abandoned in this area of the law^[469] or at least interpreted to be consistent with ordinary negligence principles.^[470] The other view allows assumption of responsibil­ity to play a role in determining liability, whether in conjunction with ordinary negligence principles or as an additional ‘control mechanism' on liability (the negligence plus model).^[471] The alternative model, what we can call the contract model, maintains that in these cases the defendant's liability is based on an assumption of responsibility to the plaintiff, where the ordinary principles of the law of neg­ligence are irrelevant.^[472] On this view, the action is not correctly characterised as belonging to the law of negligence or to tort law. Rather, the action is contractual in nature.

The aim of this chapter is to demonstrate the clear superiority of the contract model over its rival. It does so by examining each of the three confusions listed above and demonstrating how they undermine our understanding of the Hedley Byrne action. When these confusions are lifted, the basis of liability in (and only in) the defendant's assumption of responsibility to the plaintiff will be clear. Before that investigation can begin, however, it is necessary to deal with an important preliminary issue. We must identify the subject matter of our investigation and the general nature of the liability that surrounds it.

II.