Assumption of risk, duty to take care and special relationship are the bedrock of the Hedley Byrne Principle.
An oft-heard phrase is "better than the best". Can there be a superlative for a superlative? But, then, one comes across an expert among experts.
With some media exposure and marketing these "super experts,'' begin offering advice, often unsolicited, causing at times even monetary loss.
Can these "experts" be muzzled? Prima facie, the answer may be `no'. Yet, there is the "Hedley Byrne Principle," that could be an answer.
Hedley Byrne vs. Heller & Partners (1963)
The plaintiffs, advertising agents, enquired through their bankers, The National Provincial Bank Ltd, as to the credit of their clients who banked with the defendant merchant bank.
Satisfactory replies were given to such enquiries, however, with the disclaimer of responsibility. Relying on these replies, the plaintiffs placed orders for advertising space, but with the client going into liquidation, lost more than 17,000. They sued the defendant bank alleging that the replies had been deficient.
The House of Lords dismissed the claim on the ground that Heller's advice to Hedley Byrne on the creditworthiness of the bank's clients had been given `without responsibility'. But the House of Lords made it clear that had Heller not done this he would have attracted a duty towards Hedley Byrne.
A negligent misstatement, though causing financial loss only, can give rise to tort liabilities, notwithstanding the absence of any present or subsequent contractual relationship between the person suffering the loss and the one representing.
The principle was enunciated in the speech of Lord Morris as, "If someone possessed of a skill undertakes, quite irrespective of contract, to apply that skill for the assistance of another person who relies on such skill, a duty of care will arise." The Hedley Byrne Principle is based on three elements assumption of risk, duty to take care and special relationship.
The principle of duty to take care is well brought out inChaudhry vs Prabhakar. Chaudhry bought a car on the strength of Prabhakar's advice that the car was in good condition; Prabhakar discouraged her from getting a qualified mechanic to look at the car before buying it. The car subsequently proved to be unroadworthy. Chaudhry sued Prabhakar for negligence. The court allowed Chaudhry's claim. By discouraging Chaudhry from getting a qualified mechanic, Prabhakar had indicated to her that his advice could be safely relied on. As a result Prabhakar owed Chaudhry a duty to take care under the basic principle in Heldley Byrne.
The Rozny vs Marnul case expounds well the `special relationship' clause. A surveyor prepared setting-out surveys of building plots, each containing a certificate of accuracy, for a developer, who sold a plot to a homeowner together with the survey.
The house and garage then built, encroached on a neighbour's plot. The Supreme Court of Illinois held that the surveyor was liable to the homeowner in tort. Sometimes, special relationship between the parties exist, such special relationship becomes `equivalent to contract'.
In Welton vs North Cornwell District Council case, the claimants owned a guesthouse thatconstituted a food premises under the Food Act, 1984 and the Food Safety Act, 1990.
A health inspector said that the claimant's kitchen was not up to the standard. He could have closed down the claimant's kitchen but took it upon himself to advice as to what the claimants needed to do to their kitchen to bring it to satisfactory standard.
Acting on his advice, the claimants made numerous alterations to their kitchen, 90 per cent of which they subsequently discovered were completely unnecessary.
The Court allowed the claimant's claim, based on a duty to take care not to give them any incorrect advice under the basic principle in Hedley Byrne.
The Extended principle
The duty to take care under the Hedley Byrne principle is not restricted to the task of advising person to person, but it applies to all kinds of tasks.
In Junior Books Ltd vs Veitchi Co. Ltd case, the work of laying the floor was contracted out to Veitchi Co. Ltd, on the instructions of Junior Books' architect. Veitchi laid a floor of Junior Book's factory but did a poor job of it.
Two years after the floor was laid, it began to crack and needed to be replaced. Junior Books sued Veitchi for negligence so as to cover the cost of relaying the floor.
The House of Lords held that Veitchi did owe Junior Books such a duty.
The decision is justified on the basis that Veitchi indicated in the negotiation with Junior Books' architect (though not to Junior Books), that it could be safely relied on to lay the floor of the factory.
The safety net
Disclaimer: To put a disclaimer note for every expert report, as in the Hedley Byrne case.
Exercise of due care: Can be best explained by a real life example. A reasonably competent jeweller exercising due care in piercing someone's ears cannot be held liable for breach of duty as he had never indicated that he would do the piercing with the same skill of a surgeon.
Extent of liability
No Compensation: In a case it was held that the climber would not be entitled to sue the doctor under the Hedley Byrne Principle because he did not ask the doctor to advice him on the fitness of his knee in order to avoid the kind of injury that he ended up suffering - a non-knee injury.
Limited Compensation: In one case, a court held that a property was valued at 220,000 when the actual value was 180,000.
The difference of 40,000 (overvaluation) was awarded instead of the actual loss on realisation of sale of that property.
No Applicability: A suit was filed by a shareholder against the auditors for not exercising duty of care in auditing the account, which amounted to breach of duty by the auditors towards the shareholders.
It was held that the shareholder had suffered the loss in a different capacity and not in the capacity of a shareholder. Hence, he could not sue the auditors.
Perhaps the solution lies in a wise saying: "A fish would not have got into trouble had it not opened its mouth."
Naina R. Desai (The author is a Company Secretary and Wholetime Director of ALSTOM Projects India Ltd and is based in Mumbai.)