Introduction
It used to be a settled rule of the law of contract that a person who was induced to enter into a contract by the other party’s misrepresentation could not ordinarily recover damages unless the representation was fraudulent, and thus actionable in the tort of deceit, or it was contractually binding, either as a term of the prinÂcipal contract or a collateral contract.
The leading case was Heilbut, Symons & Co v Buckleton1 where all members of the House of Lords joined Lord Moulton in emphasising that it was ‘ of the greatest importance... that this House should maintain in its full integrity the principle that a person is not liable in damages for an innocent misrepresentation, no matter in what way or under what form the attack is made’. 2 For the purpose of this fundamental principle an ‘ innocent’ misrepresentation was simply one that was ‘non-fraudulent’, ie, it included a misÂrepresentation made carelessly. In addition, it was held that whether the repreÂsentation was a term of the contract must depend on the intention of the parties to be determined from the totality of the evidence. The requirement of intention to be bound was sometimes criticised as being based on a mistaken view of the previous authorities,3 but the decision in Heilbut settled the law and subsequently became the starting point for countless cases in which the question arose whether a pre-contract representation was a ‘mere’ representation or contractually binding1 Heilbut, Symons & Co vBuckleton [1913] AC 30.
2 ibid 51.
3 See, eg, S WillistonZRepresentation and Warranty in Sales—Heilbut v Buckleton’ (1913) 27 Harvard Law Review 1; DW Greig, ‘Misrepresentations and Sales of Goods’ (1971) 87 LQR 179; PS Atiyah, ‘Misrepresentation, Warranty and Estoppel’ (1971) 9 Alberta Law Review 347,348-49.
as a ‘warranty' so as to give the plaintiff a right of action in damages if it turned out to be false.[1444]However, the possibility of a new cause of action for negligent misrepresentaÂtion was opened up when, in 1963, the House of Lords held in Hedley Byrne & Co Ltd v Heller & Partners Ltd[1445] that a duty of care will be owed in the giving of information or advice where there exists a ‘special relationship' between the repÂresentor and representee involving an ‘assumption of responsibility' on the part of the representor. As speculation began concerning the scope of the new principle and its wider implications, one of the many questions that attracted a good deal of attention was whether a person who had entered into a contract relying on an ‘ innocent', albeit careless, misrepresentation by the other party might now be able to recover damages. It was argued that if A could recover damages from B for a careless misrepresentation that induced A to enter into a contract with C, the situation should be no different where the contract is with the representor, B. The introduction of this new category of negligent misrepresentation inducing conÂtract was seen as having the effect of enabling representees to recover damages in many situations without having to establish that the representation was a term of the contract, although not in all of course because some ‘innocent' misrepresentaÂtions might be truly innocent, ie, non-careless. Commentators generally favoured extension of the Hedley Byrne principle to pre-contract representations, but their views differed as to the extent of its application and its practical significance. Some made its application subject to independent proof of a special relationship.[1446] Some went further and suggested that a pre-contract relationship, by its very nature, would be a ‘special relationship'.[1447] Others, while not denying the possible appliÂcation of Hedley Byrne, viewed the new liability as being limited to representaÂtions by professional or skilled persons and thus not applicable in the majority of contract situations.[1448] In addition, they saw little practical significance for the new remedy because, in situations where the tort test of liability was met, the law of contract, independently of Hedley Byrne, would be able to impose liability in damages by categorising the statement in question as a term or collateral contract.
However, as we shall see, the courts, after some initial opposition, soon began to accept that a duty of care may be owed in respect of statements made in the course of pre-contract negotiations.This chapter has four objectives. First, it seeks to demonstrate that their LordÂships in Hedley Byrne did not intend their ruling to affect the then settled principles of the law of contract governing liability in damages for misrepresentation made by a defendant that induced a plaintiff to enter into a contract with the defendÂant. Secondly, it outlines the development of the law in this area and considers the need for, and possible advantages of, the new cause of action. Thirdly, it highlights the abolition in New Zealand by the Contractual Remedies Act 1979 of liability in tort for both pre-contract negligent and fraudulent misrepresentation, as well as the dubious thinking that lay behind this ‘reform’. Finally, it draws attention to the impact of trade practices legislation in Australia and New Zealand, which creates, in effect, a statutory tort of ‘misleading or deceptive conduct’.[1449] This legislation has to a large extent displaced the need to pursue liability under Hedley Byrne in most situations that come before the courts and, in the New Zealand context (where the legislation was passed some seven years after, and apparently in ignorance of, the Contractual Remedies Act 1979), it undermined the intention of Parliament in the latter Act to rationalise and simplify the law relating to misrepresentation and breach of contract.
II.