LW 2903 Business and Law
Lecture 7
Negligent Statement
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Negligent Statement
• The earlier position was summed up by
Bowen LJ :
• “The law of England does not consider that
what a man writes on paper is, like a gun or
other dangerous instrument.”
• A negligent statement that causes a pure
economic loss can now be the subject
matter of a tortious claim.
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• Hedley Byrne & Co Ltd v Heller & Partners Ltd [1964]
• A negligent misrepresentation might give rise to an action
for financial loss caused even if the maker of the
statement and the recipient do not have any contractual
relationship, provided that the maker and the recipient had
a ‘special relationship’.
1. The plaintiff some advice or information from the
defendant who possessed special skill;
2. The defendant knew or ought to have known that the
plaintiff would rely on such information and advice;
3. The plaintiff, in fact, acted on such advice or information
and suffered loss; and
4. It was reasonable for the plaintiff to seek the advice and
information from the defendant and act on them.
• Followed in Baron v Hartford Fire Insurance Co [1998]
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Special Relationship
• Simply giving negligent advice does not create any liability
on the person giving such advice. There must be a special
relationship between the parties.
• Mutual Life & Citizens’ Assurance Co v Evatt [1971]:
Special relationship exists where the person giving advice
is a professional adviser or holds himself out as having
some professional skills.
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Special Relationship
• Caparo Industries v Dickman [1990] – the
defendant did not owe a duty of care to the
plaintiffs as potential investors.
• An important requirement of liability is that the
defendant assumes some sort of responsibility to
give correct advice or information.
• For advice requested and given on a purely social
occasion, representor would not think that his advice
will be taken seriously, and it is unreasonable for
the representee to take such advice seriously.
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Special Relationship
• In Caparo v. Dickman (1990), D prepared an
annual audit report of X (a company), P bought
the shares of X (i.e. to takeover X). In doing this,
P relied on D’s audit report which negligently
over-valued assets of X. P’s investment was
virtually wiped out.
• Issue: Any special relationship between P and
D?
• Held: No. D prepared the audit report for the
benefit of the shareholders of X, not to assist
the potential investors of X.
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Special Relationship
• Proximity: Smith v Eric S Bush [1990] – extended the
Hedley Byrne principle to known users of the advice
whether or not they are the intended recipients of the
advice or information.
• Professional advice in a social context: Chaudry v
Prabhaker [1989] – giving advice to a friend but it was
not considered to be given on a purely social
occasion.
• Passive sufferer: Spring v Guardian Assurance Plc
[1995] – reference letter was ‘the kiss of death’
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Professional Negligence
• Professional negligence is concerned with judging
the conduct of a particular profession (e.g.
accountant/ auditor) mainly in accordance with the
normal practices and procedures of that
profession.
• After establishing that the defendant (e.g.
accountant/ auditor) owes a duty of care to the
plaintiff, the next thing to do is to find out the
standard of care.
• For professionals, the test is “what a reasonably
competent practitioner would do having regard to the
standards normally adopted in his profession”.
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Professional Negligence
• Therefore, the court may refer to the codes of practice
and industry standards of the profession in deciding
the proper standard.
• e.g. In preparing the financial statements of a
company, the auditor has to abide by the Statements
of Standard Accounting Practice (“SSAPs”), which was
issued by the Hong Kong Society of Accountants.
• In Peter P F Chan v. Hong Kong Society of
Accountants (2001), the court emphasised that the
SSAPs were required to be followed (though they do
not have the status of law) and any deviation from
them should only be made in exceptional
circumstances and had to be justified.
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