Negligent Misstatement

Question 1

Why are Negligent Mistatements approached differently?

Answer 1

1) Statements have much larger scope → ability to affect anyone

2) Risk of opening ‘floodgates’ to anyone who has made a decision based on a statement

3) Statements have a less physical/clear-cut relationship between the defendant & plaintiff

Question 2

How are the differences posed by negligent misstatements reflected in the courts’ approach to establishing a duty to take care?

Answer 2

Reasonable ‘reliance’ must be required (prevents opening ‘floodgates’)

Law must ensure that actions that attract negligence claims have a degree of consideration/intention (not casual everyday statements)

Question 3

Are damages for pure economic loss recoverable in negligent misstatement?

Answer 3

[Hedley Byrne] Damages can be recoverable for pure economic loss (unlike negligence which requires physical damages)

Question 4

What is the 3-fold test established in Hedley Byrne for a duty of care?

Answer 4

Duty of care exists where:
(1) statement made for specific purpose
(2) defendant knew it would be communicated to plaintiff
(3) plaintiff relied on it for intended purpose, used for distinction for that recognised harm in tramsission

Question 5

Why did House of Lords hold that there was no duty of care owed in Caparo?

Answer 5

The House of Lords held that the auditors owed no duty of care to Caparo because:

1) The accounts were not prepared for the purpose of guiding takeover bids.

2) There was no special relationship (proximity) between Caparo & the auditors (plaintiff relied on statements in manner unanticipated).

3) Imposing liability would be unfair and unreasonable given the broad potential class of claimants.