Pure economic loss caused by negligent misstatement

Development of negligent misstatement as a cause of action

A negligent misstatement is information or advice which is honestly provided but is inaccurate or misleading. The action for negligent misstatement is a comparatively recent common law development. In Derry v Peak (1889) 12 App Cas 337 the English Court of Appeal decided that a negligent misstatement was insufficient to support an action in deceit because a non-fraudulent misrepresentation in the absence of a contract or a fiduciary obligation was not enough to establish a duty of care.

However, the decision in Derry v Peak was reviewed by the House of Lords in the landmark decision in Hedley Byrne & Co v Heller & Partners [1964] AC 465. The House of Lords considered that Derry v Peak did not decide anything regarding causes of action for negligent misstatement and limited the decision to actions in deceit.

In England Hedley Byrne & Co v Heller & Partners established that there might be liability in tort for negligent misstatement in circumstances in which information or advice is sought from a person possessing some special skill or judgement where that person knows or ought to know that reliance is being placed upon information or advice by the person seeking it.

Hedley Byrne & Co v Heller & Partners was considered and accepted by the Australian High Court in Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 Per Barwick CJ:

The duty will arise whenever a person gives information or advice to another, whether that information is actively sought or merely accepted by that other upon a serious matter… and the relationship… arising out of the circumstances is such that on the one hand the speaker realizes or ought to realize that he is being trusted… to give the best of his information or advice as a basis for action on the part of the other party and it is reasonable in the circumstances for the other party to seek or accept and in either case to act upon that information or advice.

However, Barwick CJ deviated from the English conception of the principle by determining the ‘special relationship’ between the parties did not require the speaker to have actual possession of skill or judgement or to profess to have any such skill or judgement on the matter.

This decision was rejected by the Privy Council on appeal and the decision was reversed.

However, in subsequent cases the views of Barwick CJ in Mutual Life & Citizens’ Assurance Co Ltd v Evatt (1968) 122 CLR 556 have gained support.

Any uncertainty regarding this issue was subsequently resolved in the High Court’s decision in San Sebastian Pty Ltd v Minister Administering the Environmental Planning and Assessment Act 1979 (NSW) (1988) 162 CLR 340   where it was decided that the speaker need not possesses or claim to possess any special skill or experience.

Elements of the Cause of Action

There are three elements to a cause of action founded in negligence:

  • A legal duty must be recognized in the circumstances requiring a certain standard of conduct to protect against foreseeable risk.
  • There must be a breach of that duty by failing to meet the requisite standard of care owed.
  • And, finally, the plaintiff must have suffered a material injury as a result of the breach.

Stephen is the founder and principal of Stephen Wawn & Associates. Stephen has been providing advice and representation to clients in diverse areas of law for over 40 years.

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No part of these notes can be regarded as legal advice. Although all care has been taken in preparing all notes, readers must not alter their position or refrain from doing so in reliance on any of these notes. Stephen Wawn & Associates do not accept or undertake any duty of care to readers relating to any of these notes. All inquiries should be directed to Stephen Wawn & Associates.

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