Liability for negligent mistatement case example

Hedley Byrne & Co Ltd v Heller and Partners Ltd [1963] UKHL 4

Hedley Byrne & Co, an advertising agent, was about to place some orders for advertising for its client (Easipower Ltd) on TV and in newspapers which Hedley Byrne would be personally liable for. Before going ahead with this, Hedley Byrne  asked its bank to contact the client’s bank for a credit reference.

Hedley Byrne relied on the bank reference and placed large orders – which they lost when Easipower went into liquidation. Whom could they sue?

1.       They could queue with the other creditors in Easipower’s liquidation

2.       They could sue the banks for negligence

They sued the bank and would have been successful against the bank. The court approved the dissent in the Candler case and established the tort of negligent misstatement

However, Hedley Byrne lost the case on a technicality – the bank was not liable because of an exclusion clause in the reference letter – but the case did established the principles of responsibility for negligent misstatement.

Negligence

The tort of negligence protects the person, property and economic interests from damage caused by another person not taking reasonable care.

Tort law provides legal remedies for damage caused by negligence. Negligence is the tort which now dominates modern tort law after the successful test case of Donoghue v Stevenson in 1932.

Suing for negligence

There are three prerequisites for an action in negligence:

1.       A duty of care – this is a duty owed by one person to another because of the relationship between them which might cause injury.

2.       Breach of the duty of care – in order for a breach to happen, one must first establish the standard of care

3.       Damage – a failure to fulfill the duty of care which results in actual damage to the person who the duty of cared was owed to. The damage must have been caused or contributed to by the breach of the duty of care.

Establishing a duty of care

To be liable for negligence to another person, a person must owe a legal duty of care to that other person. One explanation is that a “duty of care” means a duty to take reasonable care or to exercise reasonable skill.

Whether a duty of care exists in a particular situation is a question of law and not fact.

Duty of care arises from the following salient features:

1.       Reasonable Foreseeability

2.       Proximity – there must be a relation between two parties

3.       Reliance – the reliance on duty of care

4.       Compassion – charity and compassion does not create a duty of care

5.       Knowledge – the defendant knew of the risk

6.       Vulnerability of the victim – Was the victim able to protect himself?

7.       Control or power to stop injury – if a person who has power to direct or to control the actions of another person knows that there is a real risk of harm unless the direction is given with care, that person owes a duty to exercise the power with reasonable care for the other person’s safety.

8.       No policy reasons – there are no policy reasons to deny a duty of care

Tenancies, leases and licences

Tenancy

A tenancy is an interest in land under which the owner gives a tenant, usually in consideration of rent, the right to exclusive possession of the land for a limited period. The landlord retains legal ownership of the property while the tenant has exclusive possession of the property.

Lease

The lease is the document or agreement creating the tenancy. A lease is a contract and it creates an interest in land.

License

A licence given by the licensor only gives authority or permission to the licensee to be on the land. In contrast to a lease, a licence does not give the licensee an interest in the land, and the rights given by a licence are:

1.       Personal to the licensee

2.       Limited in use

3.       Not transferable or assignable to a third person, and

4.       Lack the proprietary element in the property as in a lease

Tenants have benefits like statutory protection against eviction, relief against forfeiture, proprietary interests as against third parties and assignability.

Types of Leases and tenancies

Fixed term tenancy or lease

This is usually written, and its duration for a fixed term must be certain or tied to definite events so that its duration is certain. A fixed term tenancy or lease can usually be terminated earlier by notice or by the happening of a specific event such as breach of the agreement, rents arrears or hardship.

Periodic tenancy

A periodic tenancy is usually verbal and continues from one period to the next when the tenant holds over with the landlord’s agreement.

Written residential leases usually provide for a periodic tenancy at the end of the fixed term tenancy if neither party terminates the lease. If the parties continue with a periodic tenancy, it is easier for them to change the conditions of the agreement and to end the tenancy, as either the tenant or the owner/landlord/agent can end the tenancy at any time if they give the agreed notice.

Tenancy at will or informal lease

There is a common law at will if no one person is in possession as a tenant with the owner’s consent, such as a tenant continuing in possession after the expiry of a lease for a fixed term. Legislation in some jurisdictions provides those informal leases are deemed to be tenancies coming to an end at the will of either party on one month’s notice.

Tenancy at sufferance

This tenancy arises by implication of law where the tenant, who has originally entered the land lawfully, remains in possession and pays rent after the lease ended without statutory authority and without the assent or dissent of the landlord.