TheSpeechesin Hedley Byrne

It is interesting to reflect, after all that has happened over the 50 years since Hedley Byrne was decided, on the question whether their Lordships intended their ruling to affect the law relating to damages liability for pre-contract misrepresentation.

It is important to recall that prior to Hedley Byrne it was thought that dam­ages could not be recovered for financial loss caused by a careless misstatement unless the representor and the representee were in either a contractual or a fiduci­ary relationship. When the House of Lords set out to remedy this situation, the chief obstacle to be overcome was its earlier decision in Derry v Peek.^[1450] That case had been regarded as confining the remedy of damages for misrepresentation, in the absence of a contract or a fiduciary relationship, to misrepresentations made dishonestly. Once Derry v Peek had been explained as not precluding liability where there existed some other ‘special relationship’ between the parties, noth­ing else stood in the way of the House reaching its desired conclusion. Certainly, there was no need to qualify the generally accepted ratio of Heilbut, Symons & Co. v Buckleton which, like Derry v Peek, was binding on the House at that time. Although obviously strongly influenced by the decision in Derry v Peek, and the philosophy behind it, Heilbut Symons did not provide an obstacle in Hedley Byrne because it covered a different situation. There the question was whether the obli­gations assumed by the parties to a contract for the allotment of shares extended to an alleged misstatement by the defendant immediately prior to the conclusion of the contract. It was held that the misstatement (which, it seems, was regarded by Lord Atkinson as having been made carelessly)^[1451] was not remediable in damages because it was not intended by the parties to constitute a warranty.

The most natural requirement [for liability in respect of negligent misrepresentation] would be that expressly or by implication from the circumstances the speaker or writer has undertaken some responsibility, and that appears to me not to conflict with any authority which is binding on this House. Where there is a contract there is no difficulty as regards the contracting parties: the question is whether there is a warranty. (emphasis added)

It is clear therefore that his Lordship thought that the necessity for a contracting party to prove a warranty in order to recover damages in respect of a pre-contract misstatement was to remain unaffected.

Admittedly, the other speeches were more equivocal, but overall they neither sup­ported nor excluded the possibility of the new principle applying to pre-contract misstatements and it is the lack of support that is most significant in light of the fact that the House was faced with its earlier binding decision in Heilbut Symons.

Lord Hodson said:^[1455]

I do not overlook the point forcefully made by Harman LJ in his judgment [in the Court of Appeal]^[1456] and elaborated by counsel for the respondents before your Lordships, that it may in certain cases appear to be strange that, whereas innocent misrepresentation does not sound in damages, yet in the special cases under consideration an injured party may sue in tort a third party whose negligent misrepresentation has induced him to enter into the contract... [In such cases] innocent misrepresentation is not the cause of action but evidence of the negligence which is the cause of action.

A difficulty with this passage is that, when one reads Harman LJ’s very brief judg­ment in the Court of Appeal, it is not obvious that he did make the point that Lord Hodson said he ‘forcefully made’. Harman LJ essentially made three short points. First, it is a ‘fundamental proposition’ that a mere ‘innocent’ misrepresentation— which he defined as a misrepresentation ‘made without dishonesty’—that induces a contract of sale does not sound in damages, although it may provide ‘a good defence to an action of specific performance’ as well as ‘a sword. to obtain rescission of an executory contract’. Secondly, ‘there may be relationships of a con­tractual or fiduciary kind which are exceptions to that rule, but apart from that, and in the ordinary case, damages are out of the picture’. Thirdly, no such relation­ship existed on the facts so that, ‘once the plaintiffs here decided to abandon their charge of fraud, they had no hope of success’. Lord Hodson may have thought that Harman LJ’s real point was that it would be odd if, as between contracting par­ties themselves, a non-fraudulent misrepresentation did not sound in damages, whereas a third party ‘in the special cases under consideration’ might be liable to pay damages if its negligent misrepresentation induced one of the parties to enter into the contract, but, be that as it may, his Lordship’s main argument in this part of his speech was that an existing contractual or fiduciary relationship was not the only kind of ‘special relationship’ that might give rise to liability for negli­gent misrepresentation.

Lord Pearce's reference to pre-contract misstatements is also somewhat difficult to interpret. His Lordship said:^[1459]

It is argued that to [uphold a duty of care where there is a special relationship] would create confusion in many aspects of the law and infringe the established rule that inno­cent misrepresentation gives no right to damages. I cannot accept that argument. The true rule is that innocent misrepresentation per se gives no right to damages. If the mis­representation was intended by the parties to form a warranty between two contracting parties, it gives on that ground a right to damages (Heilbut Symons & Co vBuckleton). If an innocent misrepresentation is made between parties in a fiduciary relationship it may, on that ground, give a right to claim damages for negligence. There is also, in my opinion, a duty of care created by special relationships which, though not fiduciary, give rise to an assumption that care as well as honesty is demanded.

It is true that it would not be inconsistent with this passage to allow a contracting party to recover damages in tort from the other party for a careless misrepresenta­tion which did not amount to a warranty, provided that the parties were in the required special relationship giving rise to a duty of care. However, when the pas­sage is viewed against the background of counsel for the appellants' concession and the fact that Heilbut Symons was a binding decision establishing the warranty requirement, it is highly unlikely that Lord Pearce intended to qualify that requirement. It was unnecessary to do so and, in any event, a more unequivocal statement would surely have been made if it was intended to lend support to an important qualification of what Harman LJ in the Court of Appeal had described as a ‘fundamental proposition'.

On the basis of the foregoing discussion it can be confidently suggested that none of their Lordships supported the extension of the Hedley Byrne principle to misrepresentations made in the course of pre-contract negotiations. Indeed, it can be argued that at least two of them (Lord Reid and Lord Hodson) were positively against it. However, no such niceties of analysis were to feature in subsequent judicial considerations of the issue. The judges in the early cases were content to rely on largely unreasoned assertion and when, in later cases, the extension was sanctioned the supporting reasoning was at best unconvincing.

III.