Negligent Misrepresentation and the Neighbour Principle

We turn now to the three confusions listed at the beginning of this chapter. We begin with the notion that liability in this area is based on Lord Atkin's neighbour principle. On the face of it, this is an attractive view.

It has been said that Lord Atkin was wrong to claim in Donoghue v Stevenson that there must be and is a general conception of duty, because Hedley Byrne v Heller revealed or reminded us that there is not one general conception of duty but at least two: the neigh­bour principle and the assumption of responsibility. The analysis here suggests that in fact Lord Atkin was right. The assumption of responsibility is not a distinctive category of obligation, but simply a particular manifestation of the neighbour principle.^[485]

The problem with this position is that it just cannot be right. No matter how well it might be thought to fit the law of negligence, no matter how well it may appear to fit the case law dealing with the action under consideration, it must be wrong. This is because, in the relevant cases, there cannot be liability for ‘accepting] a role or embark[ing] on a task in which the claimant is so closely and directly affected by the defendant's acts and omissions that the defendant ought to have the claimant in contemplation when considering whether and how to act'.

Imagine that an economist is interviewed on television and claims that the economy is in good shape and that the share market is likely to do well over the next 18 months.

Of course, at this point we can play with our definition. Perhaps, for instance, we might say that the investors were not sufficiently closely or directly affected by the forecast to be owed a duty of care. Perhaps one might claim that it is not the case that the economist ought to have had the investors in mind. But there are seri­ous problems with these responses.

First, adopting this strategy is tantamount to admitting that the neighbour principle is in operation here in form only. In a case involving personal injury or property damage, what matters is whether injury to the plaintiff was a reasonably foreseeable consequence of the defendant's actions. Thus, in the odd cases in which this terminology is used in this context, the plaintiff is said to have been closely and directly affected by the defendant's behaviour if her injury was a reasonably foreseeable consequence of that behaviour. But in Hedley Byrne cases, though the plaintiffs' injuries may be reasonably foreseeable, it is frequently insisted that they were nevertheless not sufficiently close and direct results of the defendant's actions. In other words, this is an unreal application of the neighbour principle, because we have changed the definition of a neighbour.

Moreover, we need to ask why we want to say that the investors in our case are insufficiently closely and directly affected by the economist's acts when their injuries are entirely foreseeable. Contract model theorists have a ready answer for this: it is because the economist did not assume responsibility to the investors in relation to their investments.

It is sometimes suggested that the investors could not recover because their reli­ance on the economist's advice is not reasonable.^[486] But this again is a departure from the neighbour principle. Unreasonable reliance is often reasonably fore­seeable and the negative results of such reliance recoverable. What is more, it is quite wrong to suggest that the reliance is unreasonable. There is simply nothing unreasonable about it. Of course, it might not be reasonable to rely solely on such advice, but that is not the issue. The issue is only whether the economist's advice was a cause of the decision to invest.^[487] Likewise, though some might suggest that it would not be fair, just and reasonable to impose a duty of care in this circum­stance, this position is conclusory. Why should no duty be imposed if not because the defendant did not assume responsibility to the plaintiffs?

Nor can the claim that the defendant's duty of care rests on a requirement of proximity be taken to show that these actions are negligence actions like any other. First, in line with the argument just examined, in negligence cases such as Donoghue v Stevenson, proximity refers to reasonable foreseeability. As we also saw, however, in Hedley Byrne-type cases, reasonable foreseeability is insufficient for the existence of a duty of care. Saying that proximity operates in both areas of the law, then, is misleading. The words do not matter. What matters is the concepts to which they refer. It proves nothing that courts use the same word in each context; the issue is whether they utilise the same concepts.

In response to this, some scholars have provided an extremely abstract account of proximity capable of accommodating all of the approaches in what passes for the law of negligence.^[488] The argument, then, is that proximity is utilised in both Donoghue v Stevenson and Hedley Byrne-type cases, it is just that context demands that proximity be defined in one way in the former cases and in another way in the latter cases.

But what is the content of this concept, the concept said to hold the law of negli­gence together? At times, the answer is overtly farcical. Thus, in Canadian National Railway Co v Norsk Pacific Steamship Co Ltd, McLachlin J maintained that proxi­mity includes, among other things, ‘the relationship between the parties, physical propinquity, assumed or imposed obligations and close causal connection’.^[489] In other words, proximity could be anything. In that sense, of course proximity is relevant to the Hedley Byrne-type cases, but in that sense it is relevant to every case in every area of the law. There is no concept of proximity here at all.

The general point can be illustrated with the aid of an example. Imagine a juris­diction in which courts had determined that an action in negligence was available when the parties were in a relationship of proximity and that such a relationship would exist, inter alia, when one person had been unjustly enriched at another’s expense. Lawyers in this jurisdiction insist that this action belongs to the law of negligence. Of course, in one way they are right. But we can recognise that ulti­mately they are wrong. This is an action for unjust enrichment that has for some reason been hidden under the form of the law of negligence. This is what happened to Hedley Byrne. McLachlin J almost tells us this: in the relevant cases, proximity is concerned with ‘assumed... obligations’.^[490] Of course, this entails that proxim­ity is relevant to Hedley Byrne-type cases, but it achieves this by incorporating the contract model within the ‘ concept’ of proximity.

Alternatively, one might appeal to some policy reason or other to undermine liability. Perhaps one might claim, for instance, that the economist was provid­ing a socially valuable service that would be discouraged in future if liability were imposed in this circumstance.^[491] But this is clearly a desperate move. For one thing, the position of the law is not that in principle the economist owed a duty of care to the public but that, for policy reasons, this is cut back. There is in principle no legal duty owed here at all. For another, it could rescue the notion that this action is based on the neighbour principle only by so expanding that principle so as to include any apparently relevant policy concern, as to rob the principle of any defi­nite content. Of course, that would show that any area of liability could be ana­lysed in terms of the neighbour ‘principle’, including this one, but that is precisely the theory’s weakness.

In general, the Hedley Byrne action can be reconciled with the law of negligence only by taking the concepts of that law—neighbourhood, proximity, etc—and expanding their scope so that, at the end of the process, they have little or no meaning. This has two seriously deleterious consequences. The first is that the nature of the Hedley Byrne action is obscured. The second is that, by expand­ing these concepts, our understanding of the law of negligence itself is damaged. We have reached the position now where it seems that little in the law of obliga­tions is in principle incapable of being understood as a negligence action, as the central concepts of that action have become so incredibly broad in the mainstream accounts. The disaster that is the modern law of negligence is the result.

Of course, it has never been thought that liability for statements could be based on reasonable foreseeability alone.

In Hedley Byrne, having made the disclaimer, the defendant could not be liable. In Caparo, having made the report for one purpose, the defendant could not be liable for reliance on the report for other purposes. This has nothing to do with neighbourhood in the sense of that term elucidated by Lord Atkin in Donoghue v Stevenson. It has nothing to do with reasonable foreseeability. No amount of judi­cial pronouncements to the contrary could change this.^[492]

V.