Chapter 4 Outline answers to essay questions

Pure economic loss and negligent misstatement

In Hedley Byrne v Heller the House of Lords adopted the concept of ‘reasonable reliance’ by the plaintiff on the defendant’s skill and judgement as the basis of liability for negligent statement. More recently, this has additionally been restated on the basis of an ‘assumption of responsibility’ by the defendant.

Critically analyse the concept of assumption of responsibility.

Begin by putting the Hedley Byrne special relationship into the wider context of duty of care in negligence and the exceptional types of damage (pure economic loss and psychiatric damage) for which it is more difficult to establish a duty. The main ingredients of the special relationship (summarized as reasonable reliance) should be set out in some detail with case illustration, e.g.: Hedley Byrne itself, Caparo v Dickman, James McNaughton v Hicks.

‘Assumption of responsibility’ must then be explained: its origins in Hedley Byrne, the way in which it has come into increased use since Smith v Bush in 1990, as a means of imposing a duty for negligent misstatement when the basic ingredients of the ‘special relationship’ are absent. Relevant cases include: Henderson v Merrett, Spring v Guardian Insurance, Williams v Natural Life, and Customs & Excise v Barclays Bank.

Critical analysis requires that you weigh the benefits and disadvantages of the use of assumption of responsibility. It has enabled duty for pure economic loss to be extended into provision of services and to other relationships which do not fit the Hedley Byrne template. It has been argued that it is insufficiently precise and enables the courts to begin with a conclusion and then use the concept to justify it. It may be inconsistent with the wishes of the defendant (Merrett v Babb) or exemption clauses. There are policy concerns evident in such decisions: see West Bromwich v El-Safty and Customs & Excise v Barclays. Produce a strong and clear conclusion.