The Law Prior to Hedley Byrne
There were a number of well-established methods for securing relief after a misÂrepresentation. Some representations are also contractual warranties.[86] The action of deceit, while no longer used for breach of warranty, continued to play a key role.
In England, after a brief flirtation with a broader notion of fraudulent misrepreÂsentation,[87] by the mid-nineteenth century in the action of deceit it was settled that ‘personal moral fraud' was required.[88] [89] The plaintiff needed to prove knowlÂedge that the statement was false and an intention to deceive on the part of the defendant.40 It took some time before it was definitively settled whether or not negligence was also sufficient.[90] The House of Lords in Derry v Peek[91] made clear that a mere failure to take care was not enough. This situation was distinct from a statement made recklessly as to whether it was true or false.[92] Frederick Pollock complained that ‘ all Lincoln's Inn' thought that the House of Lords had come to the wrong conclusion[93] and would thereafter campaign without success against the decision.[94]Fraudulent transactions might also be rescinded in equity. The necessity for finding a legal response to misrepresentation had become more acute with the rise of the joint stock company.[95] When shares were purchased on the back of a false, but not necessarily fraudulent, statement in a company prospectus the misrepresentation came to be treated as a ‘legal' fraud sufficient to rescind a contract.47 The same principles were soon applied more widely.48 This extension of relief to innocent misrepresentations created new tensions. The award of an indemnity was coterminous with rescission. It was distinguished from the award of damages.49 A second equitable pecuniary remedy reflected the notion that a person should make good their representations.50 This was closer to the idea of compensation51 without ever developing into a general remedy.52
For a fleeting moment after Heaven v Pender53 it was possible that a general negligence action for misrepresentation might have developed.54 It was not to be.
The courts soon began to use Derry v Peek in order to block such claims, ignoring the fact that the decision concerned deceit and not negligence.55 Misstatements were covered by a patchwork of remedies. Company prospectuses fell within a statute.56 Damages could be recovered in deceit for fraud, but not negligence. Rescission might be granted for negligent and innocent misstatements.57 In Nocton v Lord Ashburton5s the House of Lords ruled that a negligent statement, if made in a fiduciary capacity, left the maker liable to pay compensation for breach of a fiduciary duty. Pollock was delighted and wrote that ‘ Learned friends whom it amuses to read between the lines may be of opinion that Lord Haldane would have liked to get rid of Derry v Peek altogether if he had been free to do so'.5947 M Lobban, ‘Contract' in W Cornish, S Anderson, R Cocks, M Lobban, P Polden, K Smith, The Oxford History of the Laws of England Volume XII1820-1914: Private Law (Oxford, Oxford University Press, 2010) 423-25. For example, Reese River Silver Mining Co v Smith (1869) LR 4 HL 64 (HL). On the difference between legal and moral fraud (of the sort required at common law), see Weir v Bell (1878) 3 Ex D 238 (CA) 243.
48 HartvSwaine (1877) 7Ch D42 (Ch).
49 Newbigging v Adam (1886) 34 Ch D 582 (CA) 594; C Morison, Rescission of Contracts (London, Stevens & Haynes, 1916) 201. For the wider issue of the relationship between this remedy and the comÂmon law, which caused the courts some problems, see Lobban (n 47) 426-29.
50 Burrowes vLock (1805) 10 Ves 470,32 ER 927; Slim v Croucher (1860) 1DeGF&J 518,45 ER 462.
51 Lobban (n 47) 417.
52 IE Davidson, ‘The Equitable Remedy of Compensation' (1981-1982) 13 Melbourne University Law Review 349, 357-70. For the operation of compensation in the modern law, see D O'Sullivan, S Elliot, R Zakrzewski, The Law of Rescission (Oxford, Oxford UniversityPress, 2008) 17.30-17.64
53 Heaven v Pender (1883) 11 QBD 503 (CA).
54 Cann v Willson (1888) 39 Ch D 39 (Ch). This is probably not a strong authority. Although the decision rested on a negligent misrepresentation, Chitty J also suggests that the valuation was frauduÂlent. No other support for negligent misstatement has been found in the case law but it was favoured by Pollock, Howe (n 44) 113.
55 D Ibbetson, A Historical Introduction to the Law of Obligations (Oxford, Oxford University Press, 1999) 242-43; Scholes vBrook (1891) 63 LT (NS) 837 (Ch); LeLievre v Gould [1893] 1 QB 491 (CA).
56 Directors LiabilityAct (1890) 53 & 54 Vict c64,s3 and subsequent legislation.
57 Redgrave v Hurd (1881) 20 Ch D 1 (CA) 12. In this respect as Pollock noted, the remedy of rescission and deceit were not co-extensive, F Pollock, The Law of Torts: A Treatise on the Principles of ObliÂgations Arising from Civil Wrongs in the Common Law, 2nd edn (London, Stevens and Sons, 1890) 260.
58 Nocton (n 16).
59 ‘Nocton v Lord Ashburton' (1915) 31 LQR 93, 95. Lord Haldane had discussed the case with Pollock a month before the speeches were handed down: Howe (n 44) 215. Pollock devoted surprisingly little space to the decision in the first edition of his textbook to appear after Nocton v Lord Ashburton, see Frederick Pollock, The Law of Torts: A Treatise on the Principles of Obligations arising from Civil Wrongs in the Common Law, 10th edn (London, Stevens and Sons, 1916) 307.
While Nocton v Lord Ashburton helped to minimise the consequences of earlier decisions[96] it did not entirely ameliorate all of the difficulties surrounding recoÂvery when a misstatement was not fraudulent. Donoghue v Stevenson[97] made no major or immediate impact on liability for misstatements.[98] Despite the odd example of physical injury or damage to property[99] it was not until the 1950s that recovery was seriously contemplated in cases of economic loss caused by a negliÂgent misstatement.[100]
Many of the early Australian decisions on misstatement involved land sales by auction.
Speaking in 1841, Dowling CJ had observed that ‘In consequence of the great transfer of property by auction in this colony, it was proper that the law should be known, and settled’.[101] A few years earlier in Cape v McLntosh[102] an action of deceit was brought after the sale of a property at an auction, which had been falsely described in an advertisement. The same judge hadremarked on the impropriety in auctioneers of practicing that figurative description of property entrusted to them for sale, which they were in the habit of doing, thereby imparting to it by a flourish of their fancies, a character and value which was totally inconsistent with the fact.
It was not practical, he said, to expect potential buyers to travel hundreds of miles in order to inspect a property prior to making a bid. Some of those who had purÂchased property simply wanted the contract to be rescinded and to recover the price paid.[103] Executed conveyances of land would only be set aside if the misÂrepresentation was fraudulent.[104] As for deceit itself, in King v Piggott, Lutwyche J stressed that it was necessary to show ‘moral’ as well as a legal fraud:
If a party makes a representation which he knows to be false, or if it be false in fact, and he does not believe it to be true, and makes it for a fraudulent purpose, he commits both a legal and a moral fraud for which he is responsible in damages.[105]
Australian judges were careful to draw a line between liability in equity and the common law action of deceit.[106] Equity allowed rescission and an indemnity,[107] which was different from an award of damages.[108] Yet the distinction did not stop Stawell CJ relying on some English equity cases in order to argue in Paternoster v Hackett[109] a case of common law deceit:
And this, on the broad principle that no man injured by the gross negligence of another who, recklessly indifferent, makes rash statements, ignorant whether they are true or false, is without redress against the person who makes such statements.[110]
This was not the only allusion to reckless behaviour.[111] But as Stawell CJ also pointed out, fraud was to be equated with ‘moral turpitude’.[112] This approach was consistent with Derry v Peek[113] and prevented recovery for negligent misstatements in Australia as well.[114] At the same time, in a decision which pre-dated Nocton v Lord Ashburton by a decade, it was held that, were the parties in a fiduciary relaÂtionship, compensation might be payable in the absence of fraud.[115] Within the limits of the law as it stood, there was a conscious desire to protect against behavÂiour falling short of fraud, as Madden CJ explained: ‘The times are prolific enough of cases in which people commit acts which just touch on fraud, and to apply such refinements as are suggested here would merely create lurking places for evil- doers’.[116] A division between physical injury and pure economic loss was sharply drawn in Australia[117] but the fact that the loss was caused by words was no bar.[118]
II.
More on the topic The Law Prior to Hedley Byrne:
- The Law Prior to Hedley Byrne
- Barker Kit, Grantham Ross. The Law of Misstatements: 50 Years on from Hedley Byrne v Heller. Hart Publishing,2015. — 410 p., 2015
- INDEX
- Assumption of Responsibility
- Introduction
- Introduction
- Writing in the Australian Law Journal in 1964,7 DM Gordon,8 began by observÂing that the decision ‘presents more than one drastic break with tradition' and concluded that it reflected the growing ‘Americanisation of English law'.9
- Baldwin Peter. Command And Persuade: Crime, Law, And The State Across History. MIT Press,2021. — 475 p., 2021
- Conclusions
- The Destruction of an Equitable Jurisdiction