Introduction

It is difficult to believe that the decision in Hedley Byrne v Heller¹ is more than 50 years old. It was in 1963 that the House of Lords rendered this landmark decision.

Hedley Byrne ranks along with the decisions in Donoghue v Stevenson,² and Anns v Merton London Borough Council³ as among the most influential decisions in Canadian negligence law. It was adopted quickly and often—and originally without reservation—by the Supreme Court of Canada.⁴ I am not sure how many Canadian judges and lawyers realise that Hedley Byrne is no longer the law in Canada. In its 1997 decision in Hercules Management v Ernst & Young,⁵ the Supreme Court jettisoned the wisdom of Hedley Byrne in favour of the folly of Lord Wilberforce in Anns.

¹ Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964] AC 465 (HL) (ⁱHedley Byrne').

² Donoghue v Stevenson [1932] AC 562 (HL).

³ Anns v Merton London Borough CounciI [1978] AC 728 (HL) (‘Anns’).

⁴ Hedley Byrne (n 1) was accepted, but distinguished the first two times it was considered. See Welbridge Holdings Ltd v Greater Winnipeg [1971] SCR 957 and J Nunes Diamonds Ltd v Dominion Electric Protection Co [1972] SCR 769. See also Hodgins v Nepean (Township) Hydro-Electric Commis­sion [1976] 2 SCR 501; Haig v Bamford [1977] 1 SCR 466; Carman Construction Ltd v Canadian Pacific Railway Co [1982] 1 SCR 958; Kamloops (City) v Nielsen [1984] 2 SCR 2; VKMason Construction Ltd v Bank of Nova Scotia [1985] 1 SCR 271, [1985] SCJ No 12; BDC Ltd v Hofstrand Farms Ltd [1986] 1 SCR 228; Central Trust Co v Rafuse [1986] 2 SCR 147; Fletcher v Manitoba Public Insurance Co [1990] 3 SCR 191; Queen v Cognos [1993] 1 SCR 87; BG Checo International Ltd v British Columbia Hydro and Power Authority [1993] 1 SCR 12; Edgeworth Construction Ltd v ND Lea & Associates Ltd [1993] 3 SCR 206; Winnipeg Condominium Corporation No 36 v Bird Construction Co [1995] 1 SCR 85 (‘Winnipeg Condominium'); Hercules Managements Ltd v Ernst & Young [1997] 2 SCR 165 (‘Hercules'); R v Imperial Tobacco Canada Ltd [2011] 3 SCR 45 (‘Imperial Tobacco’).

⁵ Hercules (n 4).

It is interesting in its own right that the three most influential decisions in Cana­dian negligence law were rendered by the House of Lords. The Supreme Court of Canada was created in 1875, and appeals to the Privy Council were abolished in 1949. Nevertheless, at least until the 1970s, a colonial mentality governed Cana­dian judicial law making.^[1319] Some believe that the Supreme Court did not really come into its own until 1982, when the Canadian Charter of Rights and Freedoms was adopted. The Charter also ensured that public law, not private law, would become the dominant form of law making at the Supreme Court. Canadian pri­vate law was subservient to English law before 1980 and subservient to public law thereafter. With the significant and unfortunate exception of the decision in Anns, the Canadian courts eventually did distance themselves from the House of Lords, especially in the area of negligence causing pure economic loss.^[1320] Sadly, this independent tack has often had a more salutatory effect on national pride than on Canadian negligence law. The following story about the fate of Hedley Byrne in Canada will illustrate this point.

One would think that the influence of Hedley Byrne would have been greatest in the law of negligent misrepresentation. In one sense this is true. The Supreme Court has never discussed negligent misrepresentation without referring approv­ingly to Hedley Byrne. Quotations from the speeches of the Law Lords who decided Hedley Byrne are common. However, it is the fact that the House of Lords recog­nised a cause of action for negligent misrepresentation, not how it justified and defined it in Hedley Byrne that has made the impact. The judicial reasoning in the case has actually had little apparent influence in Canada.

Despite the numerous references to, and applications of, Hedley Byrne, there has not been a single decision of the Supreme Court in which the Court has considered reflectively the core justification for the duty of care in negligent misrepresenta­tion.

The question that has preoccupied the Supreme Court concerns the ambit of the duty of care; that is, assuming the defendant owes some duty, to whom does the duty extend and for what losses?^[1325] This was not a live issue in Hedley Byrne itself, but what little was said on this question was relied upon in Haig v Bamford^[1326] and BDC v Hofstrand Farms.^[1327] In those cases, the ‘to whom/for what' question was apparently considered in the context of defining proximity between the par­ties. However, all this changed in Hercules Management v Ernst & Young.^[1328] Today, Hercules has eclipsed all the Supreme Court decisions that preceded it and stands as the leading authority on negligence misrepresentation in Canada.^[1329]

The question in Hercules was the familiar one of who was entitled to rely on negligently prepared auditing statements and for what purpose. Beyond misrep­resentation, Hercules is noteworthy for firmly entrenching in Canada the so-called ‘Anns test' or framework for recognising new duties of care.^[1330] The first step is to establish a prima facie duty of care based on sufficient proximity between the parties.

The Hedley Byrne justification for duty is a combination of the plaintiff's known,^[1332] reasonable, detrimental reliance, and the defendant's assumption of responsibility. The first explains why the plaintiff has an interest worth protecting in negligence. The second explains why the defendant may be called to account for the plaintiff's loss. Both are necessary.^[1333] Later I will suggest that ‘ foreseeable' reasonable reliance is the proper test in the context of a proper duty analysis. How­ever, it will be argued that imposing a duty of care based solely on the plaintiff's foreseeable reasonable reliance is simply wrong.

The Court in Hercules then deliberately divorced the ‘ to whom/for what' issue from the proximity inquiry. The Court preferred to deal with it as a matter of policy at Step Two of the Anns framework.^[1334] This too is wrong. ‘ To whom/for what' is a classic proximity question. Although one might take issue with her describing proximity as a ‘policy' question, McLachlan CJC was surely correct to identify proximity questions at Step One of the A nns test as concerned with questions of the relationship between the parties.^[1335] If addressed properly, such a proximity analysis usually renders a policy concern about indeterminate liability irrelevant.^[1336] Instead, the Court was forced to devote its attention to the question of indeterminacy that the Court itself had created with the overly broad foreseeable reasonable reliance test of proximity.

One of the key points I will try to make in this chapter is that the Supreme Court ought to jettison the approach developed in Hercules.

Negligent misrepresentation aside, Hedley Byrne has been influential in other aspects of Canadian private law. Again, this influence has had little to do with the doctrine articulated in the speeches of the Law Lords. Rather, the general impact of Hedley Byrne derived from the simple fact that the House of Lords had recog­nised a cause of action for negligent misrepresentation causing economic loss. This played a catalytic role in the development of the law governing the recovery of pure economic loss in other, different types of negligence case, notably the rela­tional loss cases and the product/structure defect cases.^[1337] These will be discussed at the end of the chapter, after the misrepresentation discussion. The new action for negligent misrepresentation also led indirectly, if not inevitably, to concurrent liability in tort and contract and the effective undercutting of many sensible rules of contract law.^[1338] Neither of these developments has been positive in Canadian law. For this, the Law Lords in Hedley Byrne are not to blame.

II.