Weller v Foot and Mouth Disease Research Institute [1966] 1 QB 569, QBD
The principle of the common law that a duty of care which arises from a risk of direct injury to person or property is owed only to those whose persons or property may foreseeably be injured by a failure to take care is not affected by the decision in Hedley Byrne & Co., Ltd. v. Heller & Partners, Ltd. ([1963] 2 All E.R. 575); in order to have a right of action for negligence a plaintiff must show that he was within the defendant's duty to take care, and he may then recover by way of damages for the direct and consequential loss reasonably foreseeable, but, though proof of direct loss is not an essential part of the claim, he must establish that he was within the scope of the defendant's duty of care (see p: 570, letter D, post).
In consequence, as was assumed, of the escape of a virus imported by the defendants and used by them for experimental work on foot and mouth disease at land and premises owned and occupied by them, cattle in the vicinity of the premises became infected with the disease. Because of the disease an order was made under statutory powers closing cattle markets in the district, with the result that the plaintiffs, who were auctioneers, were temporarily unable to carry on their business at those markets and suffered loss. The court was required to assume that the loss to the plaintiffs was foreseeable and that there was neglect on the part of the defendants which caused the escape of the virus. On the question whether in law an action for damages would lie for the loss,
Held:
an ability to foresee indirect or economic loss to another person as the result of a defendant's conduct did not automatically impose on the defendant a duty to take care to avoid that loss; in the present case the defendants were not liable in negligence, because their duty to take care to avoid the escape of the virus was due to the foreseeable fact that the virus might infect cattle in the neighbourhood and thus was owed to owners of cattle, but, as the plaintiffs were not owners of cattle, no such duty was owed to them by the defendants.
Hedley Byrne & Co., Ltd. v. Heller & Partners, Ltd. ([1963] 2 All E.R. 575) distinguished. Donoghue (or McAlister) v. Stevenson ([1932] All E.R. Rep. 1) and Morrison Steamship Co., Ltd. v. S.S. Greystoke Castle (Owners of Cargo) ([1946] 2 All E.R. 696) considered and applied.
the plaintiffs were also not entitled to recover under the rule in Rylands v. Fletcher ([1861-73] All E.R. Rep. 1) because they had no interest in the cattle endangered by the escape of the virus and the loss to the plaintiffs was not a sufficiently proximate and direct consequence of the escape of the virus. Dictum of Blackburn, J., in Cattle v. Stockton Waterworks Co. ([1874-80] All E.R. Rep. at p. 223) applied.
Liesbosch Dredger v SS Edison [1933] AC 449
While the dredger Liesbosch was lying moored alongside a breakwater the steamship Edison fouled the dredger's moorings and carried her out to sea, where she sank and was lost. The owners of the Edison admitted sole liability for the loss. Under a contract with the Harbour Commissioners the owners of the Liesbosch were engaged in constructive work in the harbour, for which a dredger was necessary and for which they were using the Liesbosch. The owners of the Liesbosch had staked their capital and credit on the successful result of the contract. The loss of the Liesbosch stopped the work and, being unable from want of funds to purchase any suitable dredger which was for sale, on May 4 1929, they hired a dredger, the Adria, which was more expensive in working than the Liesbosch, and required the attendance of a tug and two hopper barges. The Harbour Commissioners bought the Adria from her owners and on September 5 1930, they resold her to the owners of the Liesbosch for the same sum payable in instalments.
The House of Lords held that the measure of damages was the value of the Liesbosch to her owners as a profit-earning dredger at the time and place of her loss; and that it should include: (1) A capital sum made up of (a) the market price on November 26 1928, of a dredger comparable to the Liesbosch; (b) the cost of adapting the new dredger and of transporting and insuring her; and (c) compensation for disturbance and loss suffered by the owners of the Liesbosch in carrying out their contract during the period between November 26 1928, and the date on which the substituted dredger could reasonably have been available for use, including in that loss such items as overhead charges and expenses of staff and equipment and the like thrown away, but neglecting any special loss or extra expense due to the financial position of one or other of the parties. (2) Interest upon that capital sum from November 26 1928.
Other set of facts.
The ship Edison fouled the moorings of the Liesbosch resulting in the total loss of the dredger when it sank. It had been engaged on work in the harbour under contract with the harbour board. All the owners’ liquid resources were engaged in the contract, and their deposit under the contract was forfeit if the work was delayed. They were unable to raise the funds that were needed to buy another dredger, so they hired another, the Adria, which was more expensive to hire and work. Due entirely to their lack of means, the owners incurred much more expense in the provision of an alternative dredger than they would have done if they had been able to purchase an equivalent. The owners of the Liesbosch claimed their actual loss, on the basis that all the circumstances should be taken into account and they had acted reasonably in hiring the Italian vessel in view of their financial embarrassment. Held: The sum awarded as damages was restricted to the market price of a comparable dredger at the time of the loss, together with the cost of transporting her and insuring her to Patras. The court should not take into account a claimant’s want of means when assessing the amount of his loss. The principle enunciated in the Clippens oil case was as to the existence of any duty of mitigation. Lord Wright said that: ‘it follows that the value of the Liesbosch to the appellants, capitalized as at the date of the loss, must be assessed by taking into account: (1.) the market price of a comparable dredger in substitution; (2.) costs of adaptation, transport, insurance, etc., to Patras; (3.) compensation for disturbance and loss in carrying out their contract over the period of delay between the loss of the Liesbosch and the time at which the substituted dredger could reasonably have been available for use in Patras, including in that loss such items as overhead charges, expenses of staff and equipment, and so forth thrown away, but neglecting any special loss due to the appellants’ financial position.’
British Celanese Ltd v A H Hunt (Capacitors) Ltd: QBD 1969
Coram: Lawton J Metal foil had been blown from the defendant’s factory premises on to an electricity sub-station, which in turn brought the plaintiff’s machines to a halt. Held: The meaning Lawton J would give to the phrase ‘direct victim’ was a person whose ‘property was injured by the operation of the laws of nature without any human intervention’.
Candler v Crane, Christmas & Co [1951] 2 KB 164
Candler v Crane, Christmas & Co [1951] 2 KB 164 is an English tort law case. In it, Denning LJ delivered an important dissenting judgment, arguing for a duty of care for negligent statements. This was later upheld in Hedley Byrne v Heller & Partners Ltd [1963] 2 All ER 575 by the House of Lords.
Donald Ogilvie was the director of a company called Trevaunance Hydraulic Tin Mines Ltd, which mined tin in Cornwall. He needed more capital, so he put an advertisement in The Times on July 8, 1946, which said,
"£10,000. Established Tin Mine (low capitalisation) in Cornwall seeks further capital. Install additional milling plant. Directorship and active participation open to suitable applicant - Apply"
Mr Candler responded, saying he was interested in investing £2000, if he could see the company's accounts. Mr Ogilvie instructed Crane, Christmas & Co, a firm of auditors, to prepare the company’s accounts and balance sheet. The draft accounts were shown to Mr Candler in the presence of Crane, Christmas & Co’s clerk. Mr Candler relied on their accuracy and subscribed for £2,000 worth of shares in the company. But the company was actually in a very bad state. Ogilvie used the investment on himself and then went bankrupt. Mr Candler lost all the money he invested. He brought an action against the accountants, Crane, Christmas & Co. for negligently misrepresenting the state of the company. As there was no contractual relationship between the parties, the action was brought in tort law for pure economic loss.
Judgment
The majority of the Court of Appeal (Cohen LJ and Asquith LJ) relied on the case of Derry v Peek to refuse a remedy to the plaintiff, holding that loss resulting from negligent misstatement was not actionable in the absence of any contractual or fiduciary relationship between the parties.
Lord Denning MR delivered a powerful dissent, in which he argued that any person in the reasonable contemplation of someone making a statement who might rely on that statement is owed a duty of care in tort.[1] He was asked to read his decision first.
“
This case raises a point of law of much importance; because Mr. Lawson on behalf of the plaintiff submitted that, although there was no contract between the plaintiff and the accountants, nevertheless the relationship between them was so close and direct that the accountants did owe a duty of care to him within the principles stated in Donoghue v Stevenson;[2] whereas Mr. Foster on behalf of the accountants submitted that the duty owed by the accountants was purely a contractual duty owed by them to the company, and therefore they were not liable for negligence to a person to whom they were under no contractual duty... The only defences raised by the accountants at the hearing of the appeal were:
(1) that Fraser was not acting in the course of his employment; and
(2) that, even if he were, they owed no duty of care to the plaintiff.
The judge appears to have treated it as beyond question that Fraser was acting in the course of his employment; and I agree with him. There is no doubt that Fraser was acting within his actual authority in writing up the books and preparing the accounts, and indeed his action in so doing was ratified and confirmed by the senior partner who signed the certificate; but it is said that Fraser had no authority to show the draft accounts to the plaintiff or to answer his queries, at any rate not without asking his principals for permission to do so. The senior partner admitted that it was a very common thing for accountants at the request of the chairman or person in control of a company to give details of the company's accounts to a prospective investor so as to induce him to invest money, but he said that it was for the principal of the firm to do it, and not for a clerk. That may well be so. It may not have been within Fraser's actual authority, but that is not the point. A master is often made responsible for the unauthorized or forbidden acts of his servant, when he has for his own purposes put the servant in a position where he can do the acts. Practical good sense demands that, even though the master is not at fault himself, he should be responsible if the servant conducts himself in a way which is injurious to others. He takes the benefits of the servant's rightful acts and should bear the burden of his wrongful ones; and he is, as a rule, the only one who has the means to pay. So here, I have no doubt that the accountants are responsible for the way in which Fraser conducted himself in preparing the accounts and showing them to the plaintiff who, after all, was perfectly innocent in the matter and had not the slightest idea that Fraser had no authority to do what he did.
Now I come to the great question in the case: did the accountants owe a duty of care to the plaintiff? If the matter were free from authority, I should have said that they clearly did owe a duty of care to him. They were professional accountants who prepared and put before him these accounts, knowing that he was going to be guided by them in making an investment in the company. On the faith of those accounts he did make the investment, whereas if the accounts had been carefully prepared, he would not have made the investment at all. The result is that he has lost his money. In the circumstances, had he not every right to rely on the accounts being prepared with proper care; and is he not entitled to redress from the accountants on whom he relied? I say that he is, and I would apply to this case the words of Knight Bruce, L.J., in an analogous case ninety years ago:
"A country whose administration of justice did not afford redress in a case of the present description would not be in a state of civilization": Slim v Croucher.[3]
Turning now to authority, I can point to many general statements of principle which cover the case made by some of the great names in the law: Lord Eldon, LC, in Evans v Bicknell,[4] Lord Campbell, LC, in Slim v Croucher,[5] Lord Selborne, L.C., in Brownlee v Campbell,[6] Lord Herschell in Derry v Peek,[7] Lord Shaw in Nocton v Ashburton,[8] and Lord Atkin in Donoghue v Stevenson.[9] But it is said that effect cannot be given to these statements of principle, because there is an actual decision of this court in 1893 which is to the contrary, namely Le Lievre v Gould.[10]
Before I consider the decision in Le Lievre v Gould itself, I wish to say that, in my opinion, at the time it was decided current legal thought was infected by two cardinal errors. The first error was one which appears time and time again in nineteenth century thought, namely, that no one who is not a party to a contract can sue on it or on anything arising out of it. This error has had unfortunate consequences both in the law of contract and in the law of tort. So far as contract is concerned, I have said something about it in Smith v River Douglas Catchment Board.[11] So far as tort is concerned, it led the lawyers of that day to suppose that, if one of the parties to a contract was negligent in carrying it out, no third person who was injured by that negligence could sue for damages on account of it: see Winterbottom v Wright,[12] Alton v Midland ry.,[13] and the notes to Pasley v Freeman;[14] except in the case of things dangerous in themselves, like guns: see Dixon v Bell.[15] This error lies at the root of the reasoning of Bowen, L.J., in Le Lievre v Gould,[16] when he said that the law of England
"does not consider that what a man writes on paper is like a gun or other dangerous instrument",
meaning thereby that, unless it was a thing which was dangerous in itself, no action lay. This error was exploded by the great case of Donoghue v Stevenson, which decided that the presence of a contract did not defeat an action for negligence by a third person, provided that the circumstances disclosed a duty by the contracting party to him.
The second error was an error as to the effect of Derry v Peek, an error which persisted for thirty-five years at least after the decision, namely, that no action ever lies for a negligent statement even though it is intended to be acted on by the plaintiff and is in fact acted on by him to his loss. This error led the Court of Appeal in Low v Bouverie[17] to deny the correctness of Slim v Croucher; and in Le Lievre v Gould to deny the correctness of Cann v Willson.[18] The cases thus denied were so plainly just that the very denial of them was itself an error. The error was, however, exposed by the important case of Nocton v Ashburton,[19] which decided that an action did lie for a negligent statement where the circumstances disclosed a duty to be careful; and that all that is to be deduced from (though not decided by) Derry v Peek is that in the particular circumstances of that case there was no duty to be careful. Lord Haldane observed significantly[20] that the authorities subsequent to Derry v Peek had shown "a tendency to assume that it was intended to mean more than it did".
In my opinion these decisions of the House of Lords in Donoghue v Stevenson and Nocton v Ashburton are sufficient to entitle this court to examine afresh the law as to negligent statements, and that is what I propose to do.
Let me first be destructive and destroy the submissions put forward by Mr. Foster. His first submission was that a duty to be careful in making statements arose only out of a contractual duty to the plaintiff or a fiduciary relationship to him. Apart from such cases, no action, he said, had ever been allowed for negligent statements, and he urged that this want of authority was a reason against it being allowed now. This argument about the novelty of the action does not appeal to me in the least. It has been put forward in all the great cases which have been milestones of progress in our law, and it has always, or nearly always, been rejected. If you read the great cases of Ashby v White,[21] Pasley v Freeman[22] and Donoghue v Stevenson you will find that in each of them the judges were divided in opinion. On the one side there were the timorous souls who were fearful of allowing a new cause of action. On the other side there were the bold spirits who were ready to allow it if justice so required. It was fortunate for the common law that the progressive view prevailed. Whenever this argument of novelty is put forward I call to mind the emphatic answer given by Pratt, C.J., nearly two hundred years ago in Chapman v Pickersgill[23] when he said:
"I wish never to hear this objection again. This action is for a tort: torts are infinitely various; not limited or confined, for there is nothing in nature but may be an instrument of mischief".
The same answer was given by Lord Macmillan in Donoghue v Stevenson[24] when he said:
"The criterion of judgment must adjust and adapt itself to the changing circumstances of life. The categories of negligence are never closed".
I beg leave to quote those cases and those passages against those who would emphasize the paramount importance of certainty at the expense of justice. It needs only a little imagination to see how much the common law would have suffered if those decisions had gone the other way.
The second submission of Mr. Foster was that a duty to take care only arose where the result of a failure to take care will cause physical damage to persons or property. It was for this reason that he did not dispute two illustrations of negligent statements which I put in the course of the argument, the case of an analyst who negligently certifies to a manufacturer of food that a particular ingredient is harmless, whereas it is in fact poisonous, or the case of an inspector of lifts who negligently reports that a particular lift is safe, whereas it is in fact dangerous. The analyst and the lift inspector would, I should have thought, be liable to any person who was injured by consuming the food, or using the lift, at any rate if there was no likelihood of intermediate inspection: see Donoghue v Stevenson; Haseldine v CA Daw & Son LD.[25] Mr. Foster said that that might well be so because the negligence there caused physical damage, but that the same would not apply to negligence which caused financial loss. He referred to some observations of Wrottesley, J., which were in his favour on this point: sec Old Gate Estates LD v Toplis.[26] I must say, however, that I cannot accept this as a valid distinction. I can understand that in some cases of financial loss there may not be a sufficiently proximate relationship to give rise to a duty of care; but, if once the duty exists, I cannot think that liability depends on the nature of the damage.
The third submission of Mr. Foster was that the duty owed by the accountants was purely a contractual duty and therefore they were not liable for negligence to a person to whom they were under no contractual obligation. This seems to me to be simply a repetition of the nineteenth century fallacy which was stated in Alton v Midland Rly and exploded by Donoghue v Stevenson.
Let me now be constructive and suggest the circumstances in which I say that a duty to use care in statement does exist apart from a contract in that behalf. First, what persons are under such duty? My answer is those persons such as accountants, surveyors, valuers and analysts, whose profession and occupation it is to examine books, accounts, and other things, and to make reports on which other people - other than their clients - rely in the ordinary course of business. Their duty is not merely a duty to use care in their reports. They have also a duty to use care in their work which results in their reports. Herein lies the difference between these professional men and other persons who have been held to be under no duty to use care in their statements, such as promoters who issue a prospectus: Derry v Peek (now altered by statute), and trustees who answer inquiries about the trust funds: Low v Bouverie Those persons do not bring, and are not expected to bring, any professional knowledge or skill into the preparation of their statements: they can only be made responsible by the law affecting persons generally, such as contract, estoppel, innocent misrepresentation or fraud. But it is very different with persons who engage in a calling which requires special knowledge and skill. From very early times it has been held that they owe a duty of care to those who are closely and directly affected by their work, apart altogether from any contract or undertaking in that behalf. Thus Fitzherbert, in his new Natura Brevium (1534) 94D, says that:
"If a smith prick my horse with a nail, I shall have my action on the case against him, without any warranty by the smith to do it well"; and he supports it with an excellent reason: "for it is the duty of every artificer to exercise his art rightly and truly as he ought".
This reasoning has been treated as applicable not only to shoeing smiths, surgeons and barbers, who work with hammers, knives and scissors, but also to shipbrokers and clerks in the Custom House who work with figures and make entries in books, "because their situation and employment necessarily imply a competent degree of knowledge in making such entries": see Shiels v Blackburne,[27] per Lord Loughborough, which was not referred to by Devlin J, in Heskell v Continental Express LD.[28]
The same reasoning has been applied to medical men who make reports on the sanity of others: see Everett v Griffiths.[29] It is, I think, also applicable to professional accountants. They are not liable, of course, for casual remarks made in the course of conversation, nor for other statements made outside their work, or not made in their capacity as accountants: compare Fish v Kelly;[30] but they are, in my opinion, in proper cases, apart from any contract in the matter, under a duty to use reasonable care in the preparation of their accounts and in the making of their reports.
Secondly, to whom do these professional people owe this duty? I will take accountants, but the same reasoning applies to the others. They owe the duty, of course, to their employer or client; and also I think to any third person to whom they themselves show the accounts, or to whom they know their employer is going to show the accounts, so as to induce him to invest money or take some other action on them. But I do not think the duty can be extended still further so as to include strangers of whom they have heard nothing and to whom their employer without their knowledge may choose to show their accounts. Once the accountants have handed their accounts to their employer they are not, as a rule, responsible for what he does with them without their knowledge or consent.
A good illustration is afforded by the decision in Le Lievre v Gould itself, which I certainly would not wish to call in question. The facts are somewhat differently stated in the various reports, but collecting them together they come to this: A surveyor there surveyed work for a building owner and handed certificates to him so that he could know the amounts which he had to pay the builder. The building owner then chose to show the certificates to his own mortgagees who advanced money on them instead of on the certificates of their own surveyor. The mortgagees then said that the owner's surveyor owed a duty of care to them. That was obviously untenable, because they should have had the work surveyed by their own surveyor. Indeed they had actually stipulated for it. The relationship was therefore one in which the inspection of an intermediate person might reasonably be interposed, and was consequently too remote to raise a duty of care: see per Lord Atkin in Donoghue v Stevenson. But excluding such cases as those, there are some cases - of which the present is one - where the accountants know all the time, even before they present their accounts, that their employer requires the accounts to show to a third person so as to induce him to act on them: and then they themselves, or their employers, present the accounts to him for the purpose. In such cases I am of opinion that the accountants owe a duty of care to the third person.
The test of proximity in these cases is: did the accountants know that the accounts were required for submission to the plaintiff and use by him? That appears from the case of Langridge v Levy as extended by Cleasby B in George v Skivington;[31] and from the decision of that good judge, Chitty J, in Cann v Willson,[32] which is directly in point. In that case a valuer made a valuation of property for the very purpose of enabling his client to raise a mortgage on it; and, in order to further the transaction, the valuer himself actually put the valuation before the mortgagee's solicitor saying that it was a very moderate valuation and not made in favour of the borrower. The mortgagee advanced money on the faith of the valuation, but it turned out that the valuer had been grossly careless, and the mortgagee lost his money. Chitty, J., held that the valuer was liable in negligence, apart from any contract at all. He said that the valuation was sent by the valuers direct to the mortgagee's solicitor
"for the purpose of inducing the plaintiff and his co-trustee to lay out the trust money on mortgage. It seems to me that the defendants knowingly placed themselves in that position, and in point of law incurred a duty towards him to use reasonable care in the preparation of the document called a valuation. I think it is like the case of the supply of an article - the supply of the hairwash in the case of George v Skivington[33]".
That reasoning seems to me to be good sense and good law. I know that in Le Lievre v Gould the Court of Appeal said that Cann v Willson was wrongly decided; but it must be remembered that at that time the general opinion of the profession was that the case of George v Skivington, on which Chitty J, relied, was itself wrongly decided, or at any rate that the principle stated in it by Cleasby, B., was wrong: see per Field and Cave, JJ., and Bowen and Cotton, LJJ, in Heaven v Pender, and per Hamilton, J., in Blacker v Lake and Elliott.[34] If George v Skivington was wrong, then, of course, Cann v Willson[35] 115 was wrong, for it was based on it. But in Donoghue v Stevenson the House of Lords fully restored George v Skivington, and Lord Atkin himself approved the reasoning of Cleasby, B. 118 . It seems to me that by so doing the House of Lords have implicitly restored Cann v Willson, because they have restored the case on which it was based; and if Cann v Willson is good law it follows that in the present case the accountants owed a duty of care to the plaintiff, for the circumstances are indistinguishable.
Thirdly, to what transactions does the duty of care extend? It extends, I think, only to those transactions for which the accountants knew their accounts were required. For instance, in the present case it extends to the original investment of 2,000l. which the plaintiff made in reliance on the accounts, because the accountants knew that the accounts were required for his guidance in making that investment; but it does not extend to the subsequent 200l. which he made after he had been two months with the company. This distinction, that the duty only extends to the very transaction in mind at the time, is implicit in the decided cases. Thus a doctor, who negligently certifies a man to be a lunatic when he is not, is liable to him, although there is no contract in the matter, because the doctor knows that his certificate is required for the very purpose of deciding whether the man should be detained or not; but an insurance company's doctor owes no duty to the insured person, because he makes his examination only for the purposes of the insurance company: see Everett v Griffiths,[36] where Atkin LJ, proceeds on the self-same principles as he expounded fully later in Donoghue v Stevenson. So, also, a Lloyd's surveyor who, in surveying for classification purposes, negligently passes a mast as sound when it is not, is not liable to the owner for damage caused by it breaking, because the surveyor makes his survey only for the purpose of classifying the ship for the Yacht Register and not otherwise: Humphery v Bowers.[37] Again, a scientist or expert (including a marine hydrographer) is not liable to his readers for careless statements in his published works. He publishes his work simply for the purpose of giving information, and not with any particular transaction in mind at all. But when a scientist or an expert makes an investigation and report for the very purpose of a particular transaction, then, in my opinion, he is under a duty of care in respect of that transaction.
It will be noticed that I have confined the duty to cases where the accountant prepares his accounts and makes his report for the guidance of the very person in the very transaction in question. That is sufficient for the decision of this case. I can well understand that it would be going too far to make an accountant liable to any person in the land who chooses to rely on the accounts in matters of business, for that would expose him to "liability in an indeterminate amount for an indeterminate time to an indeterminate class": see Ultramares Corporation v Touche[38] per Cardozo CJ. Whether he would be liable if he prepared his accounts for the guidance of a specific class of persons in specific class of transactions, I do not say. I should have thought he might be, just as the analyst and lift inspector would be liable in the instances I have given earlier. It is perhaps worth mentioning that Parliament has intervened to make the professional man liable for negligent reports given for the purposes of a prospectus: see ss. 40 and 43 of the Companies Act 1948. That is an instance of liability for reports made for the guidance of a specific class of persons - investors, in a specific class of transactions - applying for shares. That enactment does not help, one way or the other, to show what result the common law would have reached in the absence of such provisions; but it does show what result it ought to reach.
My conclusion is that a duty to use care in statement is recognized by English law, and that its recognition does not create any dangerous precedent when it is remembered that it is limited in respect of the persons by whom and to whom it is owed and the transactions to which it applies.
One final word: I think that the law would fail to serve the best interests of the community if it should hold that accountants and auditors owe a duty to no one but their client. Its influence would be most marked in cases where their client is a company or firm controlled by one man. It would encourage accountants to accept the information which the one man gives them, without verifying it; and to prepare and present the accounts rather as a lawyer prepares and presents a case, putting the best appearance on the accounts they can, without expressing their personal opinion of them. This is, to my way of thinking, an entirely wrong approach. There is a great difference between the lawyer and the accountant. The lawyer is never called on to express his personal belief in the truth of his client's case; whereas the accountant, who certifies the accounts of his client, is always called on to express his personal opinion as to whether the accounts exhibit a true and correct view of his client's affairs; and he is required to do this, not so much for the satisfaction of his own client, but more for the guidance of shareholders, investors, revenue authorities, and others who may have to rely on the accounts in serious matters of business. If we should decide this case in favour of the accountants there will be no reason why accountants should ever verify the word of the one man in a one-man company, because there will be no one to complain about it. The one man who gives them wrong information will not complain if they do not verify it. He wants their backing for the misleading information he gives them, and he can only get it if they accept his word without verification. It is just what he wants so as to gain his own ends. and the persons who are misled cannot complain because the accountants owe no duty to them. If such be the law, I think it is to be regretted, for it means that the accountants' certificate, which should be a safeguard, becomes a snare for those who rely on it. I do not myself think that it is the law. In my opinion accountants owe a duty of care not only to their own clients, but also to all those whom they know will rely on their accounts in the transactions for which those accounts are prepared.
I would therefore be in favour of allowing the appeal and entering judgment for the plaintiff for damages in the sum of 2,000l.
Perry v Peek [1889] UKHL 1 is a case in English contract law, overridden today by UK company law in the tort of deceit, the tort of negligent misstatement in pure economic loss, misrepresentation in contract law, fraud in contract law, and fiduciary duty in equity. The House of Lords determined there was no general duty to use ‘care and skill’ in the context of issuing a prospectus to refrain from making misstatements, and is cited, but no longer good law, in cases of pure economic loss as a result of negligent misstatement in the law of torts.
This case has been overturned by statute, codified today in the Companies Act 2006, which now recognises the fundamental importance of full disclosure in securities markets, to avoid financial crises.
The Plymouth, Devonport and District Tramways company's prospectus stated that the company had permission to use steam trams, rather than horse powered ones. In fact, it did not because the right to use steam power was subject to the Board of Trade's consent. The company applied, honestly believing that they would get it because permission was a mere formality. In fact, after the prospectus was issued, they did not get permission. Shareholders, represented by Sir Henry Peek, who had purchased their stakes in the company on the faith of the statement, sued when the company's business ended up in liquidation.
Judgment
The House of Lords held that the shareholders' action failed because it was not proved that the director lacked honest belief in what they had said.[1] Lord Herschell, however, pointed out that although unreasonableness of the grounds of belief is not deceitful, it is evidence from which deceit may be inferred. There are many cases,
"where the fact that an alleged belief was destitute of all reasonable foundation would suffice of itself to convince the court that it was not really entertained, and that the representation was a fraudulent one."
Significance
The tort of deceit would have been established only if the misstatements had been fraudulently made. Derry v Peek thus validated the perspective of the majority judges in the Court of Appeal in Heaven v Pender. That is, for there to be deceit or fraud (which is the same) it must be shown that a defendant knows a statement is untrue, or has no belief in its truth, or is reckless as to whether it is true or false.
Derry v Peek also outlined that no duty would be required in relationship to negligent misrepresentation, without the presence of a contract, fiduciary relationship, fraud or deceit. This was later overruled in Hedley Byrne v Heller.
Nocton v Lord Ashburton [1914] AC 932
Nocton v Lord Ashburton [1914] AC 932 is a leading English tort law case concerning professional negligence and the conditions under which a person will be taken to have assumed responsibility for the welfare of another.
Lord Ashburton was buying a property for £60,000 on Church Street, Kensington, London. His solicitor was Mr Nocton. Mr Nocton advised Lord Ashburton to release part of the mortgage security. This was a bad idea, because as Mr Nocton in fact knew, this meant that the security would become insufficient. Lord Ashburton alleged the advice was not given in good faith, but rather in Mr Nocton's self-interest.
Judgment
Viscount Haldane LC for the House of Lords held that despite Derry v Peek (which had disallowed any claim for misstatements apart from in the tort of deceit), Nocton was liable for his bad advice given the fiduciary relationship between the solicitor and client.
Le Lievre v Gould: CA 1893
Ratio: Mortgagees of the interest of a builder under a building agreement, advanced money to him from time to time, relying upon certificates given by a surveyor as to stages reached. The surveyor was not appointed by the mortgagees, and there was no contract between them. The surveyor was negligent, and his certificates contained untrue statements as to progress, but there was no fraud on his part. Held: The surveyor owed no duty to the mortgagees to exercise care in giving his certificates, and they could not maintain an action against him by reason of his negligence. Lord Esher MR said: ‘But can the plaintiffs rely upon negligence in the absence of fraud? The question of liability for negligence cannot arise at all until it is established that the man who has been negligent owed some duty to the person who seeks to make him liable for his negligence. What duty is there when there is no relation between the parties by contract? A man is entitled to be as negligent as he pleases towards the whole world if he owes no duty to them. The case of Heaven v. Pender has no bearing upon the present question. That case established that, under certain circumstances, one man may owe a duty to another even though there is no contract between them. If one man is near to another, or is near to the property of another, a duty lies upon him not to do that which may cause a personal injury to that other, or may injure his property.’ Bowen LJ said: ‘the law . . does not consider that what a man writes on paper is like a gun or other dangerous instrument’ and also refered to the principle: ‘that a duty to take due care did arise when the person or property of one was in such proximity to the person or property of another that, if due care was not taken, damage might be done by the one to the other.’ Smith LJ said: ‘The decision of Heaven -v- Pender was founded upon the principle, that a duty to take due care did arise when the person or property of one was in such proximity to the person or property of another that, if due care was not taken, damage might be done by the one to the other. Heaven v. Pender goes no further than this, though it is often cited to support all kinds of untenable propositions
Banbury v Bank of Montreal: PC 1918
A bank manager employed by the respondents had advised one customer to invest in a project of another. The bank could not advise on investments. Held: The fact that the second customer owed money to the ban under an overdraft did not make the bank his agent so as to make it responsible to the first as the second’s agent,
Mutual Life And Citizens' Assurance Co Ltd And Another -v- Evatt [1971] 2 WLR 23 Lord Reid, Lord Morris of Borth-y-Gest, Lord Hodson, Lord Guest and Lord Diplock Negligence, Financial Services The plaintiff had been an investor with the defendant. He asked them about an associated company. He was given advice which was incorrect. He claimed damages for negligence. Held: The company was not itself in the business of giving such advice. The advice had been gratuitous. The company had appreciated that he might act on the advice. However they owed him no duty of care, and therefore were not liable in damages. The company made no claim to have the necessary skill to give advice on investments, and their only duty was to give honest advice, which they had done. Lord Reid and Lord Morris of Borth-y-Gest dissenting.
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