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Hedley Byrne & Co v Heller & Partners

HEDLEY BYRNE & CO LIMITED V HELLER & PARTNERS LIMITED [1964] AC 465

House of Lords – 28 May 1963

FACTS

Hedley were advertising agents who placed expensive forward advertising orders for Easipower. Hedley would be personally liable for the cost of the orders so they asked their bankers to inquire into Easipower’s financial stability. The bankers made inquiries of Heller, Easipower’s bankers.

Heller gave a favourable references but stated that the reference was ‘Without responsibility”.

In reliance on the references Hedley placed orders which resulted in a substantial financial loss. Hedley sued Heller for negligence.

ISSUES

Did Heller, who was not in a contractual or fiduciary relationship with Hedley, owe a duty of care to Hedley to not givenegligent advice?

Did the statement by Heller that the reference was given “without responsibility” exclude Heller from being liable for negligence?

FINDING

  1. The law will imply a duty of care when a party with a special skill is trusted to exercise due care and knew or ought to have known that reliance was being placed on their skill and judgment.
  2. There was an express disclaimer of responsibility, and that disclaimer meant a duty of care would not be implied.

QUOTE

Lord Devlin said:

“I think, therefore, that there is ample authority to justify your Lordships in saying now that the categories of special relationships which may give rise to a duty to take care in word as well as in deed are not limited to contractual relationships or to relationships of fiduciary duty, but include also relationships which in the words of Lord Shaw in Nocton v Lord Ashburton are “equivalent to contract” that is where there is an assumption of responsibility in circumstances in which, but for the absence of consideration there would be a contract. Where there is an express undertaking, an express warranty as distinct from mere representation, there can be little difficulty…

Where there is no consideration, it will be necessary to exercise greater care in distinguishing between social and professional relationships and between those which are of a contractual character and those which are not. It may often be materiel to consider whether the adviser is acting purely out of good nature or whether he is getting his reward in some indirect form…

Responsibility can attach only to the single act, that is, the giving of the reference and only if the doing of that act implied a voluntary undertaking to assume responsibility.” – page 528-529 of [1964] AC 465

“I shall therefore content myself with the proposition that wherever there is a relationship equivalent to contract, there is a duty of care. Such a relationship may be either general or particular. Where, as in the present case, what is relied on is a particular relationship created ad hoc, it will be necessary to examine the particular facts to see whether there is an express or implied undertaking of responsibility” – page 530 of [1964] AC 465.

IMPACT

Extreme caution should be exercised where a person’s opinion provided to others may be used in reliance by others.

In order to help prevent this all written advices etc should be prepared carefully and a disclaimer attached where appropriate.

Harvela Investments v Royal Trust Company of Canada

HARVELA INVESTMENTS LIMITED V. ROYAL TRUST CO OF CANADA (1985) 2

ALL ER 966

House of Lords (UK) – 11 July 1995

FACTS

Harvela and Sir Leonard were invited by Royal Trust to make sealed competitive bids for shares on certain terms and Royal Trust stated that it bound itself to no one except the highest bid. Royal Trust also stated that it would only accept a sealed and confidential single offer for the shares.

Harvela lodged a bid of $2,175,000 for the shares while Sir Leonard bid $2,100,000 or $101,000 in excess of Harvela’s offer. The Royal Trust purported to accept the bid by the Sir Leonard of $2,276,000.

Harvela obtained an injunction to stop the sale of the shares and sought an order for specific performance of the alleged contract between it and Royal Trust to purchase the shares.

ISSUES

When a person invites tenders and expressly binds itself to accept the highest bid is that person liable for breach of contract if the highest bidder is not accepted.

Was Royal Trust allowed to accept the referential bid (that is the bid to pay $101,000 over the other bid) from Sir Leonard or bound to accept the highest fixed bid?

FINDING

The invitation to tender by Royal Trust was an invitation to make a fixed bid for the shares and Royal Trust had offered to accept the highest bid provided it was confidential.

Royal Trust was not entitled to accept the referential bid by Sir Leonard as its offer to the bidders was read to be an invitation for a fixed bid only and it would be illogical to find that referential bids were possible.

QUOTE

Lord Diplock said

“the whole business purpose of unilateral contracts inviting two or more promisees to submit sealed tenders of a purchase price of a property which are not to be disclosed to any competing promisee and imposing on the promisora legal obligation to transfer the property to the promisee whose tender specifies the highest price is that each promisee should make up  his mind as to the maximum sum which the estimates the property is worth to him, not asum of money the amount of which cannot be determined accepted with reference to amounts specified in sealed tenders received from other  promisees of which, under the terms of the unilateral contract, he is to be denied all knowledge before the time before making his own tender has expired.” – page 970 of [1985] 2 All ER 966.

IMPACT

Parties inviting tenders should carefully consider the terms, conditions and wording of the invitation.

Failure to do this may result in unintended contracts being created between the tenderer and the party inviting tenders.

British Telecommunications v James Thomson & Sons

BRITISH TELECOMMUNICATIONS PLC V. JAMES THOMSON & SONS

House of Lords (UK) – 10 December 1998

FACTS

British Telecommunications engaged MDW Ltd. to re-furbish and repair equipment and buildings at a British Telecommunications switching station. MDW Ltd. engaged Thomson to execute steelwork as a sub-contractor.

While Thomson was executing the steelwork a fire broke out and damaged British Telecommunications’ premises. British Telecommunications sued Thomson for damages but Thomson alleged that it was unfair that a duty of care be imposed on it.

ISSUE

The contract between British Telecommunications and MDW Ltd. provided that British Telecommunications was to be insured for loss by fire. Did the obligation of British Telecommunications to insure for fire mean that it was unfair for Thomson to owe a duty of care to British Telecommunications?

FINDING

The duty of care was imposed as British Telecommunications had not contractually allowed for subcontractors like Thomson to be also insured under the policy.

Therefore the insurer could (through British Telecommunications) sue Thomson to recover its losses. If there were no duty of care owed by Thomson the insurer would have been unable to recover its losses.

QUOTE

Lord MacKay of Clashfern said:

“It is true, as Counsel for Thomson argue, that British Telecommunications were obliged to obtain insurance cover in respect of the existing structures, together with the contents thereof, owned by them, for the full cost of reinstatement, repair or replacement of loss or damage due to inter alia fire.

The contractual arrangements therefore envisaged in the event of fire, British Telecommunications would be indemnified by its insurers for the full cost of reinstatement irrespective of whether the loss or damage arose due to an act of God or an act or omission on the part of the main contractor or a subcontractor such as Thomson. It follows in my opinion that the terms of the provision for insurance of existing structures in respect of specified perils, while they provide for the recognition of a nominated subcontractor as an insured under the policy or that such nominated subcontractor shall have the benefit of a waiver or any right of subrogation which the insurer may have against him, provide no such protection for any domestic subcontractor [such as Thomson].”

IMPACT

While this decision is based on Scottish law, it is an interesting example of a subcontractor being affected by the terms of the main contract between the principal and the main contractor.

Subcontractors should carefully examine the terms of the main or head contract to determine their rights and obligations withthe principal.

This publication is intended to be a topical report on recent cases in the construction, development and engineering industries. This publication is not intended to be a substitute for professional advice, and no liability is accepted. This publication may be reproduced with full acknowledgement.

Jim Doyle

Tel.: 1800 888 783

jdoyle@doylesconstructionlawyers.com
www.doylesconstructionlawyers.com