McGILL LAW JOURNAL
Vo l. 22
Montreal
1976
No. 1
Negligent Misrepresentation
G. H. L. Fridman*
I. ORIGINS
Every so often the common law erupts: there is a cataclysm, and
some new height emerges from the disturbance, a height shaped and
smoothed by the subsequent winds and rains of litigation, under
which it settles into the ultimate configuration which represents the
law. Such a major alteration in the appearance of the common law,
or at least the common law of torts, last occurred in 1963, when the
House of Lords decided the case of Hedley Byrne & Co. v. Heller
& Partners Ltd.’ After little more than ten years experience of the
operation of the doctrine stated in the Hedley Byrne case, lawyers in
the Commonwealth can see with greater clarity the probable final
shape of the liability that was first formed by that decision. In this
article I am concerned more especially with what has happened in
Canada in consequence of the Hedley Byrne case –
and with what
has not yet happened. Since the story is incomplete, as will appear
later, a definitive account of this form of liability cannot yet be
rendered.
What is so fascinating about the Hedley Byrne case is that it
purported to be simply a logical extension of previous law, or a
reinterpretation of the earlier position under Donoghue v. Stevenson,2
in which for the first time an English court enunciated a more gener-
alized principle of negligence liability. Yet the 1963 decision of the
* MA., B.C.L., LL.M., Professor of Law, University of Western Ontario.
1 [1963] 2 All E.R. 575: on which see the early comment by A. M. Honor6,
Hedley Byrne & Co., Ltd. v. Heller & Partners Ltd. (1965) 7 J.Soc.Pub. T.L. 284.
2 [1932) A.C. 562.
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House of Lords was really a completely new departure, a repudiation
no less of some fundamental doctrines of law, particularly the law of
contract. This statement merits some explanation, not only to justify
its validity, but also to lay the foundations for what will be said
later as to future developments that may occur.
Prior to 1963 certain principles could be stated with some degree
of certainty. Thus: (i) there was liability for the negligent infliction
of physical harm to a person or his property wherever there was
a duty to avoid such harm by taking reasonable care; (ii) there was
liability for inflicting economic loss unconnected with physical
injury or damage only (a) where there was fraud, (b) where there
was a special fiduciary relationship between the causer of the harm
and the sufferer or (c) where there was a contract between the
parties, i.e. a relationship involving consideration; (iii) a misrepre-
sentation which was relied upon to the detriment of the one giving
such reliance was only actionable if (a) it was fraudulent, or (b) it
constituted a term of any contract existing between the parties; (iv)
negligence in making a representation or any other kind of statement
which was relied or acted upon to the detriment of the person so
relying was only actionable if it amounted to the negligent breach of
a contract between the parties.
These principles overlap. But I have deliberately stated them in a
form which reveals the obvious duplication so as to emphasize
the vital and leading issue: The common law, whether the approach
was contractual or tortious, was unwilling to permit liability for a
negligent, non-fraudulent misstatement which caused injury or
damage to another, unless he had “purchased” the benefit of a duty
of care on the part of the other party, by giving consideration for
the inaccurate and misleading statement. Either there was a contract
or there was not. If there was, a duty existed; if not, the statement
was a “mere” representation giving rise to no duty (other than the
duty’of being honest, i.e. to refrain from fraud or deceit).
Equity took a slightly different view of such non-fraudulent
representations. In the first place, any misrepresentation (whether
made negligently or in circumstances exonerating the maker of any
fault whatsoever) could be the foundation of an action for rescission
and indemnification, provided that such misrepresentation, even
though not a term, materially induced the other party to make a
contract. But equity restricted the injured party’s claim to indemni-
fication, in other words, reimbursement of expenses incurred under
the contract, and did not go so far as to permit the recovery of
3 See the discussion in Candler v. Crane, Christmas & Co. [1951] 2 K.B. 164.
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NEGLIGENT MISREPRESENTATION
general damages for loss resulting from the representation 4 Secondly,
equity took a rather broader view of “fraud” than did the common
law. People in certain special relationships to each other were
obliged to behave with greater honesty and more care than those not
so related, i.e., strangers both in equity and in common law.6 The
categories of those in such a special relationship were not limited
and there seems to have been sufficient flexibility in this regard to
permit some development. For example, in Woods v. Martins Bank6
(a case decided prior to Hedley Byrne), an English court albeit only
of first instance, held that there could be a fiduciary relationship of
this kind between the manager and a client of a bank (in a transac-
tion which was not governed by any contract between the bank and
the client). Hence a duty of care over and above a duty to act
with honesty was imposed upon the manager, for the breach of which
the bank was vicariously liable.7 Possibly therefore, some enlarge-
ment of liability for negligent misrepresentation might have taken
place by the manipulation of equitable doctrines. On the other hand
there is a limit to the breadth of the concept of fiduciary relation-
ships, and the lack of any generalized remedy in damages might have
been felt if the common law had been unprepared and had re-
mained unwilling to expand its horizons and introduce a new type of
responsibility.
The major obstacle to this expansion has already been mentioned
the strictness and rigidity of the doctrine of consideration. A
–
second possible obstacle related to the first, though capable of
distinct difficulty, is the doctrine of privity of contract, which
bedevilled the law of negligence generally until it received its quietus
in this respect in Donoghue v. Stevenson.” Under the doctrine of
privity of contract, a third person who is not a party to a contract
cannot acquire benefits thereunder, at least not to the extent of
being able to compel the conferment of any such benefit by an action
against one of the parties to the contract. Thus if A and B agree
that in consideration of A paying B $10,000, B will give C his car,
4 See e.g., Whittington v. Seale-Hayne (1900) 82 L.T. 49. Some change in the
law has occurred in England as a result of the Misrepresentation Act, 1967,
1546 Eliz.II, c.7, s2(2), on which see G.C. Cheshire & C.H.S. Fifoot, Law of
Contract 8th ed. (1972), 268-271.
U Nocton v. Lord Ashburton [1914] A.C. 932. Cf. in more recent times the
“trust” relationship that existed between the parties in Nixon v. Hillman
Realty Ltd (1974) 52 D.L.R. (3d) 447.
0 [1959] 1 Q.B. 55.
7Regarding the issue of vicarious liability however, contrast the case of
8 Supra, note 2.
Bank of Montreal v. Young (1966) 60 D.L.R. (2d) 220.
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a duty may rest on B to give his car to C but C cannot enforce
performance. Only A can sue if B fails to do as he has promisedY
What this meant therefore, was that if there were a contract bet-
ween A and B under which B was obliged to exercise care in its per-
formance (for example in giving technical advice), and B was neg-
ligent in carrying out his duties, C would have no right of action
against B even if he were damaged as a consequence (perhaps
because he too relied on the statements made by B). Early nine-
teenth century English authority established that if B, in my example,
had been guilty of fraud vis-&-vis A, and C suffered damage, C would
have an action (at least where C was physically injured),1O A
leading case before the important decision by the House of Lords in
Derry v. Peek:” also made clear that if the damage alleged to flow
from the fraud were purely financial, it would have to be shown that
the fraudulent misrepresentation, alleged to have been responsible
for such damage, was made directly to the person relying on it.
It would also have to be proved that the circumstances were such
that he did rely on it and so suffered the loss in question. 2 In other
words, merely to allege that at some time in the past a fraudulent
statement had been made which may have operated on A (in the A-B
relationship referred to above), that subsequently there was an A-C
relationship and that C suffered loss, was not sufficient. A more
direct connection between the fraud of B and the loss incurred by C
would have to be established.
Privity and consideration were the twin pillars of the classical
notion of contract. In a sense therefore, it may be said that they
enabled a differentiation to be drawn between contractual relation-
ships and those arising under the law of tort. It is still correct to
state that consideration is the hallmark of contract and that there
can be no rights and liabilities arising ex contractu unless the party
claiming the right or being subjected to the liability is privy to the
contract. However, recent developments in the common law and
modern critical writing in the area of contract would suggest that
there as been a “softening” of the common law ideas of consid-
eration and privity, or at the very least some reappraisal of what
they mean and how they are to be applied. Whether this has been the
consequence of the Hedley Byrne case or whether it was the back-
9 There are exceptions, but they do not affect the issues raised in this article;
see e.g., Beswick v. Beswick [1968] A.C. 58.
‘OLangridge v. Levy (1837) 2 M. & W. 519.
11 (1889) 14 App. Cas. 337.
12 Peek v. Gurney (1873) L.R. 6 H.. 377. Cf. Briess v. Woolley [1954] A.C. 333.
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NEGLIGENT MISREPRESENTATION
ground which enabled that decision to be made is uncertain. Per-
sonally I think there is much to be said for the argument that there
has been, and was prior to 1963, a subtle alteration in the attitude
of judges, in England at any rate, towards the older, stricter doc-
trines. This alteration manifested itself in several decisions which,
from time to time, hact made inroads upon the meaning and applica-
tion of consideration, the doctrine of adequacy of consideration, the
need for consideration in contract, the application of the privity
doctrine, and the extension of the exceptions to that doctrine. Fur-
thermore, examining the same period from the standpoint of the law
of tort, the previous differentiation between physical and financial
damage and the reluctance of the courts to equate the two (even
where negligence clearly existed), was undergoing change. All in all,
therefore, it could be said that when the Hedley Byrne case came
before the House of Lords, the time was ripe for some new develop-
ment in the law which would result in a more radical departure both
from the rigid distinction between tort and contract, and from the
differentiation between physical and financial damage. This applied
to the remedies available in each instance and to their juridical
basis. Such is what occurred.
II. THE DUTY
1. Basic Principles
In the Hedley Byrne 3 case, no liability was imposed upon the
bank, maker of the inaccurate statement (which concerned the
credit of a particular company with which the inquirer wanted to
do business), because the bank expressly excluded any responsibility
for the accuracy of its information. Nonetheless the House of Lords
was prepared to hold that if such exemption had not been present,
the bank would have been liable on the basis of a duty to take care
which had been broken by the negligence of its servants in making
the misstatement. To achieve this result it was necessary for their
Lordships to postulate or “create” such a duty of care. On what was
this to be founded? Or, to put it another way, how was this duty to
be formulated, not only for the purposes of the instant case, but
also for future reference? Different members of the House put the
formulation of the duty in different ways, though it is suggested that
the effect of the language used amounted to the same thing in the
end.
13 Supra, note 1.
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Thus Lord Reid said:
A reasonable man, knowing that he was being trusted or that his skill and
judgment were being relied on, would, I think, have three courses open
to him. He could keep silent or decline to give the information or advice
sought: or he could give an answer with a clear qualification that he ac-
cepted no responsibility for it or that it was given without that reflection
or inquiry which a careful answer would require: or he could simply
answer without any such qualification. If he chooses to adopt the last
course he must, I think, be held to have accepted some responsibility for
his answer being given carefully, or to have accepted a relationship with
the inquirer which requires him to exercise such care as the circumstances
require.’ 4
Lord Morris felt that it should now be regarded as settled
… that if someone possessed of a special skill undertakes, quite irrespec-
tive of ‘contract, to apply that skill for the assistance of another person
who relies on such skill, a duty of care will arise. The fact that the service
is to be given by means of, or by the instrumentality of, words can make
no difference. Furthermore if, in a sphere in which a person is so placed
that others could reasonably rely on his judgment or his skill or on his
ability to make careful inquiry, a person takes it on himself to give in-
formation or advice to, or allows his information or advice to be passed
on to, another person who, as he knows or should know, will place
reliance on it, then a duty of care will arise.15
To Lord Devlin there was ample authority to justify their 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 … 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.’6
A little later in his speech the same Judge said that
… wherever there is a relationship equivalent to contract there is a
duty of care. Such a relationship may be either general or particular.
Examples of a general relationship are those of solicitor and client and
of banker and customer …
. Where there is a general relationship of
this sort it is unnecessary to do more than prove its existence and the
duty follows. 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.17
Analyzing such statements, it becomes plain that what the House
of Lords had in mind in the Hedley Byrne case were situations in
which one person gratuitously, but otherwise for good reasons,
14 Ibid., 583.
15 Ibid., 594.
16 Ibid., 610.
“T Ibid., 611.
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NEGLIGENT MISREPRESENTATION
seriously undertook, expressly or by implication, the obligation of
providing information or advice to another, at the other’s request.
The circumstances must be such that the former knew or should
have known (and indeed may have intended) that the latter was
going to rely on the information or advice for the purpose of some
action of his own, and might therefore come to some sort of harm
if it were inaccurate or misleading. Whether the harm was physical
or financial was irrelevant, though the latter might be more likely
in many instances. Hence in such situations it was not enough that
the person providing the information or advice was honest: he would
have to exercise reasonable care to ensure that the information or
advice was not going to be misleading and therefore harmful. To
this extent such situations resembled those which involved not a
statement representing information or advice, but some kind of
physical act which might have physical repercussions or conse-
quences. That was the burden of the reasoning of the House of Lords
in Donoghue v. Stevenson.”” Looked at from one point of view, all
that the House of Lords did in the Hedley Byrne case was to extend
the doctrine of Donoghue v. Stevenson to (i) statements likely to
cause harm if misleading and (ii) situations where the only possible
harm that was likely to occur was financial loss not accompanied
by, or resulting from, physical injury or damage to property.
Such a broad, sweeping enunciation of the law at once changed
the face of the common law, with respect to innocent but negligent
misrepresentations, and opened the door wide to an entirely new
field of operations for the law of tort in general and the law of
negligence in particular. For precisely that reason the majority of
the Court of Appeal rejected the opportunity to achieve the same
result twelve years earlier in Candler v. Crane, Christmas & Co.19
The “timorous souls”, as Asquith L.. called them, won the day
on that occasion, over the brilliant and innovative dissent of Den-
ning L.J., as he then was.21 By the time the Hedley Byrne case came
before the House of Lords the atmosphere, as already suggested, had
changed. The legal, social and judicial climate was different; the
“timorous souls” were no longer in the ascendent. Quite the contrary,
18 Supra, note 2.
19 Supra, note 3. Cf. the facts in the recent Saskatchewan case of Haig v.
Bamford [1974] 6 W.W.R. 236 where a majority of the Court of Appeal still
denied a duty even after Hedley Byrne. Contrast the position with respect to
the liability of company auditors to a director who invested shares in reliance
on negligently prepared statements; West Coast Finance Ltd v. Gundesson
[1975] 4 W.W.R. 501.
2DOSupra, note 3, 195.
21 See my discussion in Negligence By Words (1954) 32 Can.Bar Rev. 638.
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there were those in the House of Lords who were prepared and
willing to extend and enlarge the scope of the law of negligence and
overthrow the previously narrow attitude. It is strange then, and
possibly unfortunate, that within a few years another senior and
important judicial body, the Judicial Committee of the Privy Council,
appears to have repented of the earlier liberalization of the law,
and to have retreated somewhat from the position occupied by the
House of Lords in the Hedley Byrne case. It is all the more strange
in view of the fact that two members of the Judicial Committee who
dissented from the majority decision, and dissented with some force
and vigour, were two Law Lords who had sat on and participated
fully in the decision and reasoning in the Hedley Byrne case.
I am referring to the case of Mutual Life & Citizens’ Assurance Co.
v. EvattL22 In that case, the plaintiff sought advice regarding financial
investment in a certain company from the defendant, another com-
pany, which was in the insurance business. The company about which
the advice was being sought, however, was an associate company of
the defendant insurance company (both of them being subsidiaries
of a third company). Thus, even though it might be argued that
normally speaking a potential investor does not seek investment
advice or information from an insurance company, there were special
circumstances in this instance which might have explained and
justified the investor’s request to the insurance company. None-
theless, the majority of the Judicial Committee, over the dissent of
Lords Reid and Morris, held that the insurance company owed no
duty of care to the investor. Hence the insurance company was not
liable when the investor relied upon the information and advice
received, invested his money, and lost a substantial amount by
reason of the poor financial state of the company in which the
investment was made. Lord Diplock, giving the opinion of the
majority of the Judicial Committee, explained that in the Hedley
Byrne case the reference to, and discussion of, “such care as the
circumstances require” presupposed
… an ascertainable standard of skill, competence and diligence with which
the advisor is acquainted or had represented that he is. Unless he carries
on the business or profession of giving advice of that kind he cannot be
reasonably expected to know whether any and if so what degree of skill,
competence or diligence is called for, and a fortiori … he cannot be
reasonably held to have accepted the responsibility of conforming to a
2 [1971] 1 All E.R. 150. It is interesting to note in Esso Petroleum Co. v.
Mardon [1975] 1 All E.R. 203 that Lawson J. was able to hold that even on
the majority view in Evatt, a party who was negotiating with another party
and had a financial interest in the outcome of advice given, owed a duty of
care with respect to such advice.
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NEGLIGENT MISREPRESENTATION
standard of skill, competence or diligence of which he is unaware, simply
because he answers the enquiry with knowledge that the advisee intends
to rely on his answer2 3
The pleadings of the plaintiff in that case failed to aver
… that the company to the knowledge of the [plaintiff] carried on the
business of giving advice on investments or in some other way had let it be
known to him that they claimed to possess the necessary skill and com-
petence to do so and were prepared to exercise the necessary diligence
to give reliable advice to him on the subject-matter of his enquiry.2 4
In the absence of any such allegation the plaintiff was therefore not
entitled to assume that the insurance company had undertaken any
other duty than to give him an honest answer to his inquiry; nor
did the law impose any higher duty on the company.
It may be seen, therefore, that this decision, which has been
severely criticized by writers2 5 though not as yet by the courts,
limited the scope of the original Hedley Byrne case. 6 To establish
the duty of care after the Evatt -decision, it is not enough to prove
a request for information and advice on a gratuitous basis, in cir-
cumstances which reveal the serious intent of the person so re-
questing, and a recognition by the one to whom the request is made
that reliance will be placed upon the answer. It is also necessary
to establish that the one to whom the request is made habitually
proffers such information or advice, that he is in the trade, business
or profession of giving such information or advice, or, at the very
least, purports to occupy such a position. Putting it simply, you
cannot ask a doctor for advice about dentistry and expect to hold
the doctor liable for a negligent opinion or for information negli-
gently given; you cannot ask someone in the tobacco business for
information or advice about the wheat business and expect com-
pensation if the information misleads and results in financial loss.
Yet this does not seem to accord fully with what appears to be
the intent and meaning of the language and decision in the Hedley
Byrne case. Can it be, as I intimated earlier, that a reaction set in
23 Ibid., 159.
24 Ibid., 160.
25 See e.g., H.J. Glasbeek, Negligent Misstatements in the Privy Council –
Area of Liability Clearly Delimited (1972) 50 Can.Bar Rev. 128.
20Note also the possible limitation which arises if the person whose
negligence is in issue is for some reason of public policy not bound by a
duty of care, e.g., if he is acting in a judicial capacity or in connection with
the administration of justice: See Rondel v. Worsley [1969] 1 A.C. 191; Sutcliffe
v. Thackrah [1974] 1 All E.R. 859 and the discussion of that case by the
House of Lords in Arenson v. Carson Beckman Rutley and Co. [1975] 3 All
E.R. 901.
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on the part of those Lords who sat in -the Hedley Byrne case or
those who joined the House after 1963; a reaction against the seeming
breadth of that decision, based upon fears that its limitless applica-
tion might open the doors of liability too wide? Such a reaction
might be not at all unreasonable if the Hedley Byrne decision, in its
pristine pre-Evatt form, were being interpreted and utilized by
courts subsequently in too cavalier and incautious a manner. I would
suggest, however, that the cases decided since Hedley Byrne, both
before and after Evatt, do not indicate that there was any kind of
undisciplined use of the Hedley Byrne case giving rise to unjustified,
unlimited liability where a person’s oral or written statements were
made without what could be considered due care. Indeed an exam-
ination of the decisions, and more particularly for present purposes
the Canadian decisions, reveals a somewhat conservative, even ten-
tative application ‘by the courts of the Hedley Byrne case. The follow-
ing discussion will show clearly that the courts were -feeling their
way in this novel area of legal liability towards some refinement
of the original doctrine.
2. Applicable cases
To start with, there are the decisions in which the Hedley Byrne
case has been applied to various kinds of relationships which it has
been held give rise to a duty of care owed by one party to the
other. In Reid v. Traders General Insurance,7 the agent of a car
dealer sold a car to the plaintiff. The agent undertook to arrange
insurance. On the insurance application form, which the agent filled
in for the plaintiff, the agent concealed the known fact that the
plaintiff’s husband had had his driving licence cancelled. The car sold
to the plaintiff was damaged and the insurance company was held not
liable to the plaintiff. In an action brought by the plaintiff against
the agent and his principal, the car dealer, it was held that both were
liable, irrespective of a contractual relationship between the agent
and the plaintiff, on the basis of breach of duty, viz., tortious duty,
arising under the Hedley Byrne case. Here, in effect, the relationship
was one of seller and buyer, although the sale was made on behalf
of a principal, not the party actually negotiating the sale.
It is interesting to point out however, that the contract between
the agent (or his principal) and the plaintiff was one concerning the
sale of some goods, and the breach of duty was not with respect to
any aspect of that contract. (This is especially so in view of later
2 (1963) 41 D.L.R. (2d) 148.
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NEGLIGENT MISREPRESENTATION
statements as to the existence of potential tort liability where there
is a contractual relationship between the relevant parties, which wil
be considered in due course.) There was nothing wrong with the
goods, the contract was not broken, either deliberately or negligently.
The wrongdoing was quite collateral to the contract even though it
would seem that its purpose was to make sure that the plaintiff
could obtain insurance which, in turn, would probably have had
the desired effect of bringing about the sale of the car. This pre-
sumably was to the advantage of the agent, as well as his principal,
since the agent would thereupon earn commission. While the agent
and his principal, the car dealer, were not professionals or experts
in relation to the insurance business, nevertheless it could be argued
that in comparison with the plaintiff, a housewife, they possessed
expertise and connections which were useful and important and
upon which she relied in order to obtain what she wanted, namely
a car that was properly insured. It is suggested however, that on
the basis of the reasoning and judgment in the Evatt case,2 8 this
decision would not be the same today if the facts were to arise again.
The same may not be true of Dodds & Dodds v. Millman, 9 another
case decided soon after the Hedley Byrne decision was reported. In
this case the real estate agent of the vendor of some property made
statements to a prospective purchaser about the expected earning
capacity of the property. The projected revenue and expenses were
contained in what was called an “operating statement”, which gave
a false impression of the potential profitability of the property. There
was no fraud found by the Court on the part of the agent, none-
theless he was held liable in tort to the plaintiff purchaser. Since
there was no contract between the -plaintiff and the agent, it was
necessary to discover some tortious basis for liability; the contract
between the purchaser and the vendor, which contained a clause
exempting the vendor from liability, could not be invoked to protect
the agent of the vendor from liability to the purchaser. In this
instance there can be no doubt that the requirements laid down by
the House of Lords in the Hedley Byrne case were fulfilled. It is
suggested, however, that even under the Evatt test, there would still
have been liability, since the real estate agent was being asked for
his opinion and advice on a matter which was clearly within his
professional expertise and competence.
28Supra, note 22.
29 (1964) 45 D.L.R. (2d) 472. Cf. Hopkins v. Butts (1968) 65 D.L.R. (2d) 711.
See also, Bango v. Halt (1971) 21 D.L.R. (3d) 66 which speaks of the quasi-
fiduciary duty of the real estate agent towards a potential purchaser of
property.
McGILL LAW JOURNAL
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A third case belonging to this period (though not reported until
two years later when the Ontario Court of Appeal upheld the decision
of the trial judge), is Myers v. Thompson & London Life Insurance
Co.20 This concerned a request to a life insurance agent by the
solicitor of the agent’s client. In order to arrange the affairs of the
client, it was necessary for the agent to take certain steps to avoid
the tax implications of existing insurance arrangements. On the
instructions of the client, the solicitor in turn instructed the agent
(on a gratuitous basis since both were acting for the same person)
to do what was required in the circumstances. The agent did nothing.
As a result of his neglect, the client’s estate suffered loss through the
imposition of succession duties which became payable on the death
of the insured (the client). It was held that the life insurance agent
was liable for the extra duty payable as a consequence of his negligent
failure to act, on the basis of the Hedley Byrne case, since the agent
was
… a person possessed of a special skill and [the insured’s solicitor] was
entitled to rely on him to exercise due care and [the agent] in turn knew
or ought to have known that reliance was being placed on his skill and
knowledge in this matter.;1
Once again the facts reveal a relationship involving an expert in a
particular field (insurance in this instance), a situation which comes
not only within the original Hedley Byrne doctrine but which also fits
under the smaller umbrella of Evatt.
Up to that point in time therefore, it can be argued that even
without the direction of the Judicial Committee in the Evatt case,
Canadian courts were applying the Hedley Byrne case in situations
which fitted within the doctrine as it was subsequently restated
and restricted.
In Windsor Motors Ltd v. Corporation of Powell River,3 2 an
interesting, and in some ways important step was taken. What the
Court did in this case was to extend the scope of potential liability
beyond the sphere of private activity (such as advice given by
lawyers, bankers and other professionals), into the area of public
conduct or responsibility, i.e. government action. The case was
concerned with information* as to zoning provided by a licensing
inspector, employed by the city, to a prospective lessee of a site, who
wanted to utilize it for a used-car business. There was little point in
leasing the site if he could not use it for such a purpose, hence his
inquiry. The answer elicited led to the lease of the site. When it
30 (1967) 63 D.L.R. (2d) 476.
31 Ibid., 483.
32 (1965) 68 W.W.R. 173.
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NEGLIGENT MISREPRESENTATION
turned out not to be zoned in such a way as to permit him to conduct
the business in question, the lessee sued the city, basing his action
on the Hedley Byrne case. He argued that there was a duty not to
mislead him by negligently-given advice, by following which he had
incurred loss. In holding the city liable, Branca J.A. of the British
Columbia Court of Appeal set out the salient facts which brought
the case within the Hedley Byrne principle. They were as follows:3
(i)
the lessee was unfamiliar with the zoning by-law; (ii) the lessee
sought information from someone who was a responsible officer of
the corporation; (iii) the lessee trusted that official to give reliable
information; (iv) the lessee expected that care would be taken
given the official’s specialized knowledge; (v) the official knew
that the lessee relied on him to exercise reasonable care; (vi) the
lessee acted on information received from the official in question.
An important feature of this case, stressed in some subsequent
decisions as will appear, was that the inspector not only gave advice
that was inaccurate due to his negligence, but also issued a licence.
The lessee of the site went into the used-car business in reliance on
the advice and the licence. In other words, more than simply a
statement by the defendant was involved: there was a positive act
which misled the plaintiff and caused him to act to his detriment
with consequential financial loss. Did this make a difference? From
what occurred in later Canadian cases, to be examined below, it is
possible that the fact of issuing a licence, a document purporting
to entitle the plaintiff to operate in a certain manner, was a vital
link in the chain of ultimate liability. The duty was not simply
one of care in relation to the spoken or written word, but also in
relation to the administrative act of granting official permission.
The case is similar to the English decision of Ministry of Housing
and Local Government v. Sharp34 in which the issuance by a land
registrar of a certificate of clear title when in fact the plaintiff
Ministry had registered a compensation notice against the land in
question, was vital to the finding that the defendant Council was
vicariously liable for the negligence of its servant, the registrar,
under the doctrine of Hedley Byrne.
It seems that the Court in the Windsor Motors 5 case was con-
fining liability under Hedley Byrne to cases where there was what
33Ibid., 178.
34 [1970] 2 Q.B. 223. Cf. the Canadian case of Collins v. Haliburton, Kawartha
Pine Ridge District Health Unit [1972] 2 O.R. 508 which concerned the negligent
issuance of a letter stating that the plaintiff’s, business was an “offensive
trade”.
35 Supra, note 32.
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might be termed a “professional” reliance upon the words, informa-
tion, advice, or other statement provided by the defendant. This is
borne out by the language of Verchere J. of the Supreme Court of
British Columbia, in George v. Dominick Corporation of Canada, a
case in which this kind of liability was not found (although there
was liability for breach of contract). The learned Jidge, summariz-
ing the effect of the Hedley Byrne case, said this:
A person exercising a profession or calling is liable for failure to exercise
due care and skill, despite the absence of a contractual relationship, if
the person to whom his careless advice is given is relying on him to take
the care required in the circumstances, such reliance being reasonable,
and he knows or ought to know that he is being relied on … 30
This was a case in which it was alleged that a stockbroker had failed
to inform a client of Stock Exchange rules concerning margins pay-
able on certain shares, which led to some extra cost on the part of
the client. In the event the Judge held that there had been no
failure to take reasonable care; hence there could be no tort liability.
The passage just cited however, indicates an attitude towards the
Hedley Byrne case that, with respect, was probably not justified
before the judgment in the Evatt case. Yet in this decision which may
be said to echo the effects, if not the language, of earlier Canadian
cases after Hedley Byrne, there is every manifestation of a restrictive
approach to the development opened up by the House of Lords in
1963.
That the Evatt case was restrictive was admitted by Parker J. of
the High Court of Ontario in Gadutsis v. Milne.3 In this case a
municipal employee was asked whether the plaintiffs were permitted
by the zoning laws to alter certain premises and use them as a
restaurant. The employee negligently advised that the alterations
could be made and issued the necessary building permit. Relying
upon this, the plaintiffs incurred expense in connection with the
alterations only to discover later that they were not permitted by
the municipality to use the property as they had intended. An
action was brought in negligence against the municipal employee
(and against the municipality on the basis of vicarious liability),
which was maintained. But once again, as in the Windsor Motors
case, it can be argued that the basis of liability was not Hedley Byrne
– bad advice negligently given – but a negligent act, namely issuing
a permit when one should not have been given, in reliance upon which
the plaintiffs acted to their financial detriment. However, the Judge
36 (1969) 8 D.L.R. (3d) 631, 640.
37 (1972) 34 D.L.R. (3d) .455, 459.
19761
NEGLIGENT MISREPRESENTATION
was able to find the defendants liable on a “true” Hedley Byrne
basis because the municipal employees consulted by the plaintiffs
.. were there to give out information as to zoning. The city employees
in the zoning department must have known that persons inquiring would
place reliance upon what they said 3 8
In this aspect the case was different from the Evatt decision, since
in the latter it was not the normal duty of an insurance company
to give financial advice about other companies. So even with the
Evatt qualification of the Hedley Byrne case, the facts in the Gadutsis
situation could be brought within the scope of liability for negligent
misrepresentation, quite apart from any negligence in the issuance
of the permit.
Furthermore, the negligent conduct was not excused by the ex-
culpatory clause contained in the building permit application form
filled out by the plaintiffs. This only protected the municipality from
liability in the event of “revocation” of the permit. It, was held
however, that the damage flowed not from the revocation, but from
the original issuance of the permit, which would never have happen-
ed had it not been for the negligence of the employees at the very
outset of the plaintiffs’ inquiries. Hence the disclaimer clause was
inoperative. While this smacks a little of casuistry, the end result
was probably just and reasonable. So far as the question of duty is
concerned, however, this decision, without actually approving the
Evatt case, is a step towards suggesting that its limitations on the
Hedley Byrne principle should be adopted by courts in Canada.
In two more recent cases, the courts held that a duty of care in
making a statement was owed by the defendant to the plaintiff. In
one case 39 the defendant was a stockbroker and the plaintiff was the
bank of one of the stockbroker’s clients. It was held that the stock-
broker owed a duty to the bank to take care when providing in-
formation relating to potential financing by the bank of the client.
The request for information was made not on a social occasion but in
a business connection, a distinction which was drawn in the Hedley
Byrne case. For other reasons, however, of which more later, there
was no liability, but the case illustrates the business type relation-
ship which must be involved before the Hedley Byrne case can
38 Ibid.
39 Bank ffir Handel und Effekten v. Davidson & Co. (1974) 46 D.L.R. (3d) 3,
upheld on appeal (1975) 55 D.L.R. (3d) 303. See also Northwestern Mutual
Insurance Co. v. J.T. O’Bryan and Co. [1974] 5 W.W.R. 322 on the subject
of an insurance agent’s duty to the insurer to warn him that he was still
obliged to cover a particular risk, so that he could have cancelled the policy
in time to avoid liability.
McGILL LAW JOURNAL
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become operative.40 In the other case, Porky Packers Ltd v. Town
of The Pas,41 a municipality was again held negligent in granting a
building permit which was acted upon by the grantee to his financial
detriment, when it was found to have been given invalidly. Subject to
some later comments regarding another issue, this case does not
carry the story very much further.
Summarizing what these decisions achieve, it may be said that
they have explored the kinds of relationship first suggested in the
Hedley Byrne case, with a view to establishing when a duty of care
can arise with respect to giving advice, issuing permits and providing
information. There seem to be two major groupings. The first consists
of professional or semi-professional people whose business it is in
the normal course of things to offer advice and information in
reliance upon which the one advised will act. More often than not,
some financial implication is involved, with possible and, as it turns
out in these cases, actual economic loss.42 The second is composed of
public or government officials, whether federal, provincial or muni-
cipal (though so far, only the last class seem to have been involved).
Such people, by virtue of their position and their duties, may be
obliged to use care in the way that they advise the public, or exercise
their prerogatives to issue permits and licences which enable mem-
bers of the public to do certain things otherwise not allowed. Virtute
of-ficii, such people must use reasonable care in the way they
perform their work in addition to their duty to act honestly and in
the public interest.
If this analysis is correct, then it indicates the conservatism of
the courts to which reference has already been made. Support for
this assertion is to be found in two cases of the Supreme Court of
Canada4 3 in which, on the issue of whether or not a duty existed, it
4 0 0n appeal the majority upheld the trial judge on the issue of causation,
but Bull JA. thought that no duty of care was owed; (1975) 55 D.L.R. (3d) 303.
41 (1974) 46 D.L.R. (3d) 83.
42 But if such “professionals”, e.g., valuers, are acting as arbitrators or
quasi-arbitrators in a judicial way, resolving a dispute that has been formulated
between the parties (as opposed to making a valuation) they may be immune
from a duty of care in the same way as judges and barristers. See the dis-
cussion by the House of Lords in Sutcliffe v. Thackrah, supra, note 26 and
more recently in Arenson v. Carson Beckman Rutley and Co., supra, note 26;
in both cases the Court of Appeal was reversed.
4 3 Welbridge Holdings Ltd v. Metropolitan Corporation of Greater Winnipeg
(1969) 4 D.L.R. (3d) 509 (Man. Q.B.); aff’d (1970) 12 D.L.R. (3d) 124 (Man. C.A.);
aff’d [1971] S.C.R. 957, (1970) 22 D.L.R. (3d) 470. J. Nunes Diamond Ltd v.
Dominion Electric Protection Co. (1969) 5 D.L.R. (3d) 679 (Ont.H.C.); aff’d
(1970) 15 D.L.R. (3d) 26 (Ont.C.A.); aff’d [1972] S.C.R. 769, 26 D.L.R. (3d) 699.
19761
NEGLIGENT MISREPRESENTATION
was held that none arose under the law of tort. In both’ cases the
attitude of the Court was that the relationship between the parties
was such as to negate any duty of care in respect of the kind of
activity that was being carried out by the defendant on the occasion
in question. The reasons why this was so in each case were so
different that they reveal some desire on the part of the Court to
limit the extent of the Hedley Byrne doctrine, quite distinct from the
qualification which is to be found in the Evatt case.
3.
Inapplicable cases
Take first the Welbridge case.4 The plaintiff relied upon a grant
of building permission, in other words a representation as to zoning,
made by a municipality. In consequence the plaintiff incurred certain
expense in connection with the building. The courts, culminating
in the Supreme Court of Canada, 5 held that the zoning by-law had
been improperly passed; the zoning was therefore illegal and the
building permission given to the plaintiff was inoperative. For the
loss incurred the plaintiff sued in negligence, relying on the Hedley
Byrne doctrine. At all stages of the case the plaintiff was unsuccess-
ful (though Freedman I.A. did dissent in favour of the plaintiff
when the case was before the Manitoba Court of Appeal). How could
this be, particularly in the light of the Windsor Motors case?40 There
appears to have been negligence on the part of officials of the
municipality, which caused the loss of which the plaintiff complained.
Surely there was a duty on the municipality to see that its by-laws
were properly passed, so as to preclude the possibility of a success-
ful challenge in the courts?
A vital point in this regard seems to have been that the negligence
alleged was not that of a servant of the municipality, for which the
latter was being held vicariously liable, as was the situation in the
Windsor Motors case, and later in Gadutsis v. Milne.47 In the Wel-
bridge case the negligence alleged was that of the municipality itself.
It was argued that there was a duty on the municipality in enacting
a zoning by-law enlarging the development possibilities of designated
land, to exercise reasonable care to see that the procedures upon
which valid enactment depended were followed. Economic loss was
foreseeable; such loss occurred; therefore there was a duty to take
care to avoid such loss. But the Supreme Court, speaking through
441bid.
45Ibid.
40Supra, note 32.
47 (1972) 34 D.L.R. (3d) 455.
McGILL LAW JOURNAL
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Laskin J., refused to accept this. The duty must be established
before dealing with the question of “the consequences for which
reparation should be made”.48 This harks back to a famous statement
by Lord Sumner on the distinction between culpability and compen-
sation,4 9 a differentiation which, with great respect to the present
Chief Justice of Canada, was demolished for most if not all purposes
by the Judicial Committee in The Wagon Mound (No. 1),” fifteen
years ago. Surely the prospect, which would be known to a reasonable
man (or in the instant circumstances, a reasonable municipality) was
that if there was something legally wrong with the by-law there would
be loss on the part of those who relied upon its validity to organize
their affairs. Foresight of harm, in this case of economic harm, is
indeed the crucial feature of such situations and the liability that
may flow from them. The cases cited by Laskin J. to support his
contention, Liesbosch v. Edison5 and S.C.M. (United Kingdom) Ltd
v. W. J. Whittall & Son Ltd,52 do not deal with the existence of a duty
but with the consequences for which a person will be liable in the
event of breach of a duty undoubtedly owed. They raise and discuss
the issue of liability for the economic consequences of a physical
injury or damage inflicted upon the plaintiff by a negligent defendant
(a very different issue which does not arise in the present context).r 3
The cases which turn upon the question of negligent misrepresenta-
tion are all cases in which the only damage is economic or financial,
in which the very basis of liability is the prospect or foreseeability
of that type of damage.
Be that as it may, the approach of the Supreme Court to the
“duty” issue in the Welbridge case was hardly expansive. To quote
Laskin J.:
Accepting that Hedley Byrne has expanded the concept of duty of
care, whether in amplification or extension of Donoghue v. Stevenson,
it does not, nor, in my view, would any underlying principle which
animates it, reach the case of a legislative body, or other statutory
tribunal with quasi-judicial functions, which in the good faith exercise
of its powers promulgates an enactment or makes a decision which turns
out to be invalid because of anterior procedural defects. 4
4 8 Welbridge Holdings Ltd v. Metropolitan Corporation of Greater Winnipeg
[1971] S.C.R. 957, 966.
4 9 Weld-Blundell v. Stephens [1920] A.C. 956, 984.
50 [1961] A.C. 388.
51 [1933] A.C. 449.
52 [1971] 1 Q.B. 337.
53 See C. Harvey, Economic Losses and Negligence: The Search for a Just
Solution (1972) 50 Can.Bar Rev. 580.
54 Supra, note 48, 967.
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NEGLIGENT MISREPRESENTATION
There is no doubt that a deliberate abuse of such powers with the
aim of harming another, is actionable, either in its own right or
possibly on the grounds of conspiracy. But a merely negligent abuse
of powers does not give rise to liability, despite Hedley Byrne.
Why not? Because there was no special relationship between the
municipality and the plaintiff, nor did the municipality assume any
responsibility to the plaintiff with respect to procedural regularity.
Laskin J. drew a distinction between the legislative, quasi-judicial
powers, and administrative, ministerial or business powers of the
municipal corporation. There could be contractual or tortious liabil-
ity (including liability for negligence) with respect to the last group
of powers, but not with respect to the others. In the words of
L.askin J.:
There may… be an individualization of responsibility for negligence in
the exercise of business powers which does not exist when the defendant
acts in a legislative capacity or performs a quasi-judicial duty. 5
The difference lies in the distinction between the public or govern-
mental aspects of a municipality and its business functions, which is
also the demarcation line between a municipal corporation and a
private one.
A second ground for refusing liability was that the making of the
by-law was really a part of the legislative and not the quasi-judicial
functions of the municipality, even if there could have been liability
for negligence in relation to the performance of the latter. But this
was not possible in any event. A failure to observe the rules of natural
justice in a quasi-judicial activity may invalidate the results of such
activity, but it gives no right to damages to a person injured or
suffering loss in consequence, where the failure in question is said
to spring from negligence. (The situation, as already observed,
whether a private or public body is involved, will be different if the
failure was deliberate and malicious.)5″
Lastly, the loss to the plaintiff was not the result of a misrepre-
sentation, but the consequence of a faultily enacted by-law 7 (contrary
to the view of Freedman J.A. in the Manitoba Court of Appeal) 58
Hence the more general doctrine of the Hedley Byrne case, founded
as it is upon the notion of a misrepresentation arising from a
statement made by the defendant, could not apply to the circumstan-
5 Ibid., 968.
56 Ibid., 967. Cf. similar situations where the allegedly negligent party was
exercising a judicial or arbitral function: See the cases cited supra, notes
26 and 42.
57 Ibid.
5s8 (1970) 12 D.L.R. (3d) 124, 138-140.
McGILL LAW JOURNAL
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ces of this case. This was not so in Windsor Motors.0 Such a decision
plainly depends upon how the court characterizes the nature of
the alleged wrongdoing on the part of the defendant. With respect,
there seems to have been every justification for the view adopted by
Freedman J.A. that the negligence of the municipality flowed as
much from their representation of the ability of the plaintiff to
build as he wished, as from the manner in which the municipality
enacted the relevant by-law. It was not simply a case of passing the
by-law and saying nothing to the plaintiff as it seems to have ap-
peared to Laskin J. and the other members of the Supreme Court.
What then emerges from this fascinating and difficult case?
Simply put, its effect may be summarized as follows: that there is no
duty of care imposed upon public bodies when they are exercising
their legislative or quasi-judicial functions, though there may well be
when they are engaged in day-to-day administration. Is this a valid
and logical distinction capable of being derived from the law of
negligence in general and the Hedley Byrne doctrine in particular?
Or is it more a difference based upon requirements and dictates of
policy? We have it on the recent authority of Lord Denning M.R. in
Dutton v. Bognor Regis United Building Co. that “[i]n previous times,
when faced with a new problem, the judges have not openly asked
themselves the question: what is the best policy for the law to
adopt?”!O But the question has always been there in the background,
concealed behind such questions as: Was the defendant under any
duty to the plaintiff? Was the relationship between them sufficiently
proximate? Was the injury direct or indirect? Was it foreseeable or
not? “Nowadays”, said Lord Denning, “we direct ourselves to con-
siderations of policy”.0′ Perhaps not all judges are as honest about
this as Lord Denning. Nonetheless it must be recognized that there
is such a concept as judicial policy, and it is inherent, if not explicit,
in many if not all major decisions. I would suggest that in the Wel-
bridge case,6 at the base of the decision was the policy of not render-
ing municipalities or other governmental institutions potentially
liable to suits for negligence where miscalculations, errors, or im-
proprieties may have caused -harm to people relying upon the valid
conduct of the affairs of the institution in question. It would be an
added terror to government, it would possibly become expensive for
the public purse, and it might prove a hindrance to the proper man-
59 Supra, note 32.
‘0 [1972] 1 All E.R. 462, 475.
01 Ibid.
62Welbridge Holdings Ltd v. Metropolitan Corporation of Greater Winnipeg
[1971] S.C.R. 957.
19761
NEGLIGENT MISREPRESENTATION
agement of the particular form of government that was involved.
The law of negligence may be extended so far –
indeed a good deal
farther than perhaps originally contemplated by Lord Atkin in 1932
– but it will not be extended ad infinitum.
Could it be said by way of justification of the attitude adopted by
the Supreme Court in the Welbridge case that a municipal corpora-
tion, when acting as this one did, was not purporting to offer pro-
fessional or business guidance on the faith of which the plaintiff
relied and could have been foreseen to rely? If so, then it might be
argued that in any event, the circumstances of the Welbridge case
did not fall within Hedley Byrne, at least as that case has been in-
terpreted, especially by Evatt.
That was one, though not the only ground upon which the
Supreme Court (over the dissent of Spence I. on this occasion)
denied liability in the second case –
J. Nunes Diamonds Ltd v.
Dominion Electric Protection Co.0 In that case the defendants
installed a warning system to protect the plaintiffs’ jewellery against
burglary. The contract stipulated the supply of equipment and pro-
vision of services for a rental price. It excluded conditions, warran-
ties and representations, and provided that the defendants were not
insurers and were only liable for $50 damages. As there had been a
theft from other premises protected by the defendants’ system, when
the alarm had not gone off, the plaintiffs brought in the defendants
to check their system. It was on this occasion that an employee of the
defendants, a technician, made a statement to a servant of the
plaintiffs, which clearly indicated that the system installed by the
defendants was foolproof and could not be rendered inoperative,
even by the defendants themselves. The defendants wrote to the
plaintiffs saying that investigations into the earlier burglary were
taking place. It was never discovered whether the system was faulty
or whether the protection company’s employees had been guilty of
complicity. Subsequently the defendants’ system was circumvented
and the plaintiffs were burgled, losing a considerable quantity of
jewellery. They sued the defendants, alleging negligence. The latter
were held not liable.
Two reasons for this emerge from the majority judgment given
by Pigeon J. In the first place, the defendants had not undertaken
any duty to give accurate advice, as required under the Hedley Byrne
doctrine. The insurance brokers utilized by the plaintiffs provided
advice; the defendants merely contracted to supply specific services,
namely a system for burglary protection. If the defendants did make
6 [1972] S.C.R. 769.
McGILL LAW JOURNAL
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an honest but inaccurate statement as to the performance of its
system,
… it did not thereby assume responsibility for all damage which might
thereafter be sustained by the [plaintiffs] if its system, on his premises,
was circumvented. 4
This was not a case where a person sought information from another
whose business it was to give such information (as established by
Evatt which seems to have been approved by the Supreme Court in
this case). Nor was there any misrepresentation resulting in a con-
tract being entered into, which leads us to the second reason for
the decision. In this case the parties had mutually established their
respective rights and obligations by contract, the terms of which did
not make the defendants an insurer of the plaintiffs’ property
against the risk of burglary. The plaintiffs had agreed to accept the
system for what it was worth, and the alleged misrepresentation by
the defendants’ employee as to the infallibility of the protection
system could not introduce any alternative or more extensive duty
than that fixed by the contract.0 5
Perhaps by way of reinforcement (although from the language of
Pigeon J. it seems more like an additional reason), it was said that
the Hedley Byrne principle was inapplicable to any case where the
relationship between the parties is governed by contract, unless the
negligence relied on can properly be considered as “an independent
tort”, outside the purview of application of the contract.”, It is this
feature of the case which is the most interesting and important in
the present context. Before considering it further, however, it must
be pointed out that Spence J. dissented on the ground that the facts
involved the kind of misrepresentation, made in the kind of situation
and by the kind of person contemplated by the Hedley Byrne case,
justifying the imposition of a duty which had been breached by the
defendants, with consequent liability. Such representations had been
made by the defendants’ manager in response to written inquiries,
and by their technician in response to an oral question made by the
plaintiffs. On both occasions there was a serious communication
“made in circumstances where the representor could have no other
view than that his expert opinion was intended to be relied on”.7
,4 Ibid., 777.
05 Ibid. Contrast the situation in Esso Petroleum Co. v. Mardon [1975] 1 All
E.R. 203, and in Walter Cabott Construction Ltd v. The Queen (1974) 44 D.L.R.
(3d) 82 in which it was held that where the statement or advice was made
or given in a pre-contractual situation there could be a duty. Cf. Dillingham
Constructions Pty. Ltd v. Downs [1972] 2 N.S.W. L.R. 49.
06 Supra, note 63, 777-728.
67 Ibid., 807.
19761
NEGLIGENT MISREPRESENTATION
With this view of the case the present writer respectfully agrees.
But even if it were accepted as correct, there would remain as a
stumbling-block to a decision in favour of the plaintiffs the other line
of reasoning contained in the judgment of the majority –
the con-
tract-tort dichotomy.
If this reasoning is correct, and it is a matter of some debate in
the English as well as the Canadian courts, the result would appear
to be that if there is a contract between the parties, no alternative
basis for potential liability for negligence can be found in the
creation of a tortious duty of care. There are English cases which
support such a proposition.6 8 However there is also at least one
English decision, arising out of a contract of sale of goods, in which
the issue was raised but the trial judge refused to deny possible tort
liabilityY9 Moreover, since the Nunes Diamonds case there has been
a Canadian decision (from British Columbia)*” in which, despite the
existence of a contract of sale of goods between the parties, it was
held at first instance that there could be liability on the part of the
seller to the buyer not under the contract but in tort, on the basis
of a negligent misrepresentation. This was reversed on appeal.”
However, with regard to pre-contractual situations72 where a sub-
sequent contract ensues, the decision casts some doubt on the matter.
The contract-tort dichotomy is questionable from the point of
view of authority. How does it stand in principle? Is it correct and
reasonable to confine the parties within the limits of any contract
which they may have made if it is conceivable to postulate liability
some other way, by basing their relationship on duties and rights
arising outside the contract? One argument in favour of the strict
approach is that once the parties have taken the trouble to express
their relationship in contractual terms, they do not intend to be
regulated by the more general law. On the other hand, if for some
reason the contract will not be effective in whole or in part as for
instance where there is an exemption clause, it may be that not-
withstanding such exclusion or limitation of liability under the
contract, there will be tortious liability73 Alternatively, the contract
68Clark v. Kirkby-Smith [1964] Ch.506; Bagot v. Stevens, Scanlon & Co.
[1966] 1 Q.B. 197. Cf. Banks v. Reid (1974) 53 D.L.R. (3d) 27 and Samayoce
v. Marks (1974) 53 D.L.R. (3d) 42 with regard to the situation between solicitor
and client.
69Vacwell Engineering Co. v. B.D.H. Chemicals Ltd [1971] 1 Q.B. 111.
70 Sealand of the Pacific Ltd v. Ocean Cement Ltd (1973) 33 D.L.R. (3d) 625.
1 Sub. nom., Sealand of the Pacific Ltd v. McHaffie Ltd [1974] 6 W.W.R.
724.
72 See the cases cited supra, note 65.
3 White v. John Warwick & Co. Ltd [1953] 1 W.L.R. 1285.
McGILL LAW JOURNAL
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may not deal with the exact situation which has arisen and will not
govern, making room for the law of tort. A further argument still
is that save in cases where exact and comprehensive language is
utilized by the parties (as the House of Lords in the Suisse Atlantique
case74 visualized might be possible), the parties will not have covered
every possibility by their contractual language. In the Nunes Dia-
monds case,75 for instance (despite what was said by Pigeon J.), is
it reasonable to conclude that the plaintiffs were not relying on state-
ments or implicit representations on the part of the defendants,
whether contractual in character or not, in deciding whether to make
use of the defendants’ system of burglary protection rather than any
other means or device? Of course, as is true of many other situations,
much depends upon the interpretation of the language comprising
the contract, but there is no more difficulty about this in the present
context than in any other.
In short, therefore, it is suggested that the refusal to invoke
the Hedley Byrne doctrine in a case covered by an express contract
between the parties, except in the narrow circumstances envisaged
by Pigeon J., is unjustified and an unnecessary restriction upon the
scope of the duty of care enunciated in 1963. The fact that the
Supreme Court adopted such an attitude exemplifies excessive cau-
tion, and a very limiting approach to the innovative concepts pro-
pounded in the Hedley Byrne case. Possibly the statements in the
Nunes Diamonds case on this point may be considered as obiter dicta
and ultimately not to be followed strictly. Perhaps the dissent of
Spence J., who did not take the same point of view on this matter,
will help in this regard. 0
4. Other aspects of the duty
Answering the question whether a duty of care with respect to
making a statement or giving advice is owed by the defendant in the
circumstances does not always totally resolve the issue of liability.
Other subsidiary or collateral matters have to be decided, although
they may be looked upon as aspects of the duty issue.
74 Suisse Atlantique Socidt6 D’Armement Maritime S.A. v. N.V. Rotter-
damsche Kolen Centrale [1967] 1 A.C. 361.
l5 Supra, note 63.
71 The Canadian, English and Australian cases are critically discussed by
C.R. Symmons, The Problem of the Applicability of Tort Liability to Negligent
Mis-statements in Contractual Situations: A Critique on the Nunes Diamonds
and Sealand Cases (1975) 21 McGillLJ. 79, in which the whole problem is
canvassed at length.
19761
NEGLIGENT MISREPRESENTATION
(a) Who is protected?
One minor problem arose in the Weibridge case.7 Given that a
duty of care might be owed to those who could be affected in-
juriously by a failure to observe the procedures upon which valid
enactment of the by-law depended (a position ultimately not accepted
by the Court), who precisely would come within this category?
Obviously the residents of the area affected by the by-law, possibly
even the residents at large of the municipality. The plaintiff in this
case however, was a company which not only came into existence,
but also did not acquire any interest in the affected land, until
after the passage of the invalid by-law. The preliminary inquiries
and actions were taken by promoters who only formed the company
when it became clear (as they thought) that their project would be
feasible. In an obiter dictum, Laskin J. said that he would not
exclude the company from the class of those to whom a duty was
owed (if any duty were owed) merely because of this later acquisition
of legal personality and interest in the land. 8 This suggests that a
duty of care, at least of the variety under discussion in this article,
could be owed to someone not in existence at the time the duty arose
and was broken- a novel proposition when comparison is made with
cases which are concerned with the duty of care not to cause physical
injury. For a long time there has been a controversy as to whether
a duty of care of this sort could be owed to an unborn child, who
might be affected by an act of negligence committed before its
birth, and more immediately to its mother, so as to produce some
subsequent physical deformity. There has been some movement
towards the idea that a duty could be owed to such a non-person. 9
The language of Laskin i. in this case, albeit the legal problem is
slightly different, could be cited in support of such movement.
It was certainly relied upon by the Manitoba Court of Appeal in
the case of Porr-, Paclers Ltd v. Town of The Pas.so There was a
duty of care in that case, and there was a breach which could be
the foundation of liability as already considered. But as in the
Welbridge case, the company suing was not in existence at the time
of the misrepresentation which was the cause of action. That mis-
representation was made to various people who subsequently formed
the company to undertake the activity for which they thought
77Supra, note 62.
78 Ibid., 966.
79 Children affected by thalidomide were successful because the defendants
settled the claims.
sOSupra, note 41.
McGILL LAW JOURNAL
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permission had been granted by the municipality. Matas J.A., giving
the judgment of the Court, discussed the case of a pre-incorporation
contract,”‘ which at common law could not be ratified and adopted
by a company subsequently coming into existence, and which may
now be validated under statute, for example in Manitoba under The
Companies Act.82 That provision could entitle a company to sue for
representations made to trustees for the company, on the faith of
which the trustees contracted and made commitments on behalf of
the company. Thus, by the application of statutory provisions relating
to companies (which may have been intended to validate contracts
and deal with property rights, rather than cope with potential tort
actions), and by adopting the lead provided by Laskin J. in the
Welbridge case, the opportunity was seized by the Manitoba Court
to create liability in negligence for a misrepresentation made to
another party, not the plaintiff, on the faith of which the plaintiff
was alleged to have suffered loss. This, it seems, is a far cry from
the unborn child being injured en ventre sa mare by the negligent
act of the defendant; and an even further cry from the notion of Lord
Atkin 2 and many others that a duty of care cannot exist in the air,
but must be owed to someone, presumably someone in existence, if
it is to give rise to liability.
There may be some analogy between the child in the womb at
the time the mother is subjected to the defendant’s negligence, with
the result that the physical trauma is transmitted to the child, and
the company which is in the contemplation of promoters, trustees or
others at the time a misrepresentation is made to them, so that it is
passed on to the company in the fullness of time and produces
financial loss. But such an analogy cannot be taken too far. There
is a difference between actual injury to the foetus and potential loss
to the company not yet created. The Manitoba Court of Appeal
justified their treatment of the problem in terms of the transmission
of accrued rights (under the statutory provision referred to above),
from the people who formed the company to the company itself.
What the Court was doing was treating a potential right to sue for
misrepresentation as an accrued right of this kind. In a sense this
is legitimate, but there is something inelegant about the whole idea,
81 Ibid., 90-92.
82 S.M. 1964 (2d Sess.), c.3, s.142 (now R.S.M. 1970, c.C-160, s.159): “Subject
to its ratification by the corporation., every corporation is upon its incorpora-
tion vested with all the property, rights, assets, privileges and franchises there-
tofore held for it and subject to the liabilities under any trust created with
a view to its incorporation.”
83 In Donoghue v. Stevenson, supra, note 2.
19761
NEGLIGENT MISREPRESENTATION
particularly when the comparison with physical injuries is made.
Since this whole area of liability for negligent conduct is an extension
of the original notion contained in Donoghue v. Stevenson,8 in which
it was related to physical damage, it might be thought reasonable,
wherever the doctrine is being extended or applied, to bear in mind
the connection betwen different types of injury, lest the law relating
to one kind is made to differ fundamentally from that relating to
another. This, it is suggested, ought not to occur unless there is very
good reason. 85 With respect, and despite the dictum of Laskin J. in
the Welbridge case,8
it is suggested that the treatment of misre-
presentations ultimately affecting corporations not in existence at
the time the misrepresentations are made as being capable of giving
rise to liability is misconceived. Indeed, two members of the Mani-
toba Court of Appeal in the Welbridge case were clearly of this
opinion.8 The later decision in the Porky Packers case88 is very much
open to question. It is an instance of a very liberal view of the law,
based upon incorrect principle, and leading to results that are
disruptive of logic, as well as unjustified in terms of that elusive
concept “justice”.
(b) Directness
At least in the Porky Packers case it could be said that there was
a direct link between the promoters and the company eventually
created. Thus there was a direct causal connection between the re-
presentation by the municipality to the promoters and the ultimate
reliance and loss by the company. In the absence of such a direct
connection there would appear to be no duty of care for the reason
that there can only be the sort of “special” relationship envisaged
in the Hedley Byrne case and exemplified in subsequent decisions,
where the maker of the inaccurate statement had or ought to have
had in mind the person who in the end result relied upon the state-
ment and thereby suffered loss. In the Porky Packers case one could,
as the Court appears to have done, substitute the original recipients
84 Ibid.
M On the question of measurement of damages, cf. the recent case of
Uncle Ben’s Tartan Holdings Ltd v. Northwest Sports Enterprises Ltd (1974)
46 D.L.R. (3d) 280, in which it was held that in an action for negligent
misrepresentation only “out of pocket” loss is recoverable, not loss of bargain.
This is comparable to the measurement of damages in cases of physical injury.
86 Supra, note 62, 966.
87 (1970) 12 D.L.R. (3d) 124, 145-146 per Guy JA., 159-160 per DicksonS.A.
Support for this position is given by the later case of Haig v. Barnford, supra,
note 19.
88 Supra, note 41.
McGILL LAW JOURNAL
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of the representation, with the company which they formed later
on in time. Looking at it from one point of view the company was
simply a new organization of the people who in the first instance
were misled by the municipality. The same might have been said of
the company in the Welbridge case. As argued above, this sort of
result is not the most desirable. But it is to some extent understand-
able, and possibly can be accepted for the purpose of fulfilling one
essential requirement of liability under the Hedley Byrne doctrine.
In two more recent cases, however, the court did not find either the
necessary directness or the required reliance which would support
a claim based upon alleged negligent misrepresentation.
One of these cases is Central B.C. Planers Ltd v. Hocker.9 Sales-
man A working for some stockholders informed salesman B, from
another branch of the firm, of an oil strike which he mistakenly
believed had occurred. A told B that he had received orders to buy
shares in the company which had an interest in the oil well. B
told several of his customers of this report, but his version differed
somewhat from the story as he had received it from A. In effect he
gave his customers the impression that there was a considerable oil
discovery, that this was not known by the public, and that the first
salesman, A, had orders for 25,000 shares of the company. On the
strength of this, his customers bought shares which, since the report
was unfounded, were not as valuable as believed, and they lost
money. They sued the two salesmen, alleging misrepresentation. It
was held that salesman B was liable, on the basis of the trust reposed
in him by his customers in consideration of his and his firm’s know-
ledge, skill and expertise. But salesman A was not liable, since there
was no direct relationship between him and the customers of B.
Moreover, the representation B made to his customers was not in
the same terms as the representation made to B by A. Possibly if B
had merely repeated what A had told him, the situation would have
been different. As it was, even if a duty was owed by A, the conduct
of B did not constitute a breach of that duty by A. In other words,
A’s misrepresentation was not made to the plaintiffs directly, nor
did the plaintiffs rely on it. Therefore while A may have been negli-
gent regarding the accuracy of his information, he was not negligent
vis-a-vis the plaintiffs.
This was held in spite of the fact that the Judge found that A
knew or should have known that the information he gave to B
would be passed on to B’s customers. Since it was foreseeable on A’s
89 (1970) 10 D.L.R. (3d) 689. See also re the lack of foresight and control
over the use of a statement, Haig v. Bamford, supra, note 19.
19761
NEGLIGENT MISREPRESENTATION
part that by misleading B, he would be likely to mislead others,
especially customers or prospective customers of B, why should A
not have been responsible, as well as B, as the one who, in effect,
instigated the whole chain of events that led to the plaintiff’s loss?
A stronger instance of no foreseeability of loss, and of no reliance
on the misrepresentation, is provided by the more recent decision in
Bank ffir Handel und Effekten v. Davidson & Co. Ltd90 X was a
client of both the plaintiff bank and the defendant stockbroker.
While perfonning certain stock transactions for X, the defendant
sent the plaintiff telex messages confirming the sale of shares owned
by X, as a result of which the plaintiff credited X’s account with the
sale price. X turned out to be the buyer and seller of the same shares
so that contrary to what the plaintiff bank expected, there was no
money forthcoming from these transactions. In consequence the
plaintiff bank suffered loss and sued the stockbroker alleging breach
of contract and negligence. It was held that since the bank was not
acting as a stockbroker in these circumstances, there was no con-
tractual relationship to support an action for breach of contract.
More importantly in the present context, there was no liability in
negligence for two reasons. First of all, while a duty was owed by the
stockbroker to the bank under Hedley Byrne, there was no negligence
since the stockbroker could not have foreseen that the bank would
credit the customer with the total sale price of the shares in question.
Following the principles of The Wagon Mound (No.)1,9′ the loss
suffered by the bank was not of such a kind as the reasonable man
should have foreseen. Applying the law of British Columbia (which,
failing evidence to the contrary, was presumed to be the same as the
law of Switzerland where the bank was situated and the entries in
the books made) and the facts as found, Hinckson J. held that the
loss was unforeseeable. Therefore, the stockbroker had not been
guilty of negligence, i.e. a breach of duty.
The second reason for the decision against the plaintiff bank was
that their action in giving credit to X, which led to the loss in
issue, was not the result of reliance upon the messages from the
stockbroker as to the sale of shares, but stemmed from reliance
upon other collateral security held by the bank. In this the learned
Judge adopted and applied a dictum in the Dutton case to the effect
that the “professional man must know that the other is relying on
his skill and the other must in fact rely on it”,92 for there to be
liability under the Hedley Byrne doctrine.
90 Supra, note 39. Cf. Haig v. Barnford, ibid.
O’Supra, note 50.
0 Supra, note 39, 26.
McGILL LAW JOURNAL
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Thus as these cases show, there may be a duty in the abstract,
or the circumstances may justify the conclusion that the necessary
relationship existed between the parties to substantiate potential
liability for negligent misrepresentation, but that will not be enough.
The loss must be foreseeable, and it must be caused by direct re-
liance on the misrepresentation, by someone (the plaintiff) whose
reliance is itself foreseeable.
(c) The nature of the duty
What is the nature of the duty that is owed, when it arises?
It is a duty of care which presumably transcends the duty of honesty
which is owed in any event, though this was never made clear in the
Hedley Byrne case. Extrapolating from the general law of negligence
regarding physical injuries, the duty of a person to exercise reason-
able care with regard to making statements, giving advice and so on,
involves the imposition of the responsibility to be as accurate as
can be expected of a reasonable man in his position, with his skill
and knowledge, in the circumstances of the case. With regard to the
last factor, the availability of facts and other necessary requirements
to provide the information or advice in question must be borne in
mindY3 In most if not all the cases which have thus far come before
the courts, especially the Canadian courts, the defendant has res-
ponded to a request for information, advice or guidance. For
various reasons, his negligence in failing to provide the right answer
has or has not led to liability as the case may be. The point is that
in these instances the plaintiff (or his agent, servant, official, pro-
moter, etc.) has approached the defendant and put the matter in
motion. In one case, however, Rivtow Marine Ltd v. Washington
Iron Works, 4 which ultimately raised other issues upon which it
was decided, there was no such specific request for information.
Nevertheless, even without such action on the part of the plaintiff,
there was an obligation on the defendant to provide information, in
effect an obligation to warn, in certain circumstances 5 However,
this was regarded primarily as an aspect of the manufacturer’s duty
of care rather than negligent misrepresentation.
The Rivtow case involved a faulty crane which, because of its
defects, could not be used by the plaintiffs, the ultimate purchasers,
93 lHence there was no failure to take reasonable care, and no liability on
this basis in George v. Dominick Corp. of Canada (1969) 8 D.L.R. (3d) 631.
94 (1970) 74 W.W.R. 110 (B.C.S.C.); rev’d in part (1972) 26 D.L.R. (3d) 559
(B.C.C.A.); rev’d in part [1974] S.C.R. 1189, (1973) 40 D.L.R. (3d) 530.
95 [1974] S.C.R. 1189, 1209 per Ritchie J.
96Ibid., 1214.
19761
NEGLIGENT MISREPRESENTATION
thereby involving them in expense in two ways: (i) repairs to the
crane; (ii) loss of revenue through inability to use it for the period
of the repairs. The action was brought against the manufacturer,
and was based upon the Donoghue v. Stevenson principle. Since
neither personal nor proprietary damage had followed however, the
issue in the case was whether the plaintiffs could recover for the
“purely” economic loss which had followed from the negligence of
the manufacturer of the crane. In the event it was held that the loss
of revenue was recoverable, but not the cost of the repairs (though
on this point there was dissent in the Supreme Court of Canada,
ably and comprehensively expressed by Laskin J.). 97 If liability in
such a case is to be based upon faulty manufacture it does leave
open, as the split in the Supreme Court reveals, the question whether
damage of the kind complained of by the plaintiff is recoverable in
such an action. But suppose the cause of action could be founded
upon negligent misrepresentation? Suppose the plaintiff argued that
he was deceived into believing that the crane was satisfactory and
in working order by implied if not express representations made by
the manufacturer in permitting it to go on the market? Would that
extend the scope of damage recoverable by an injured plaintiff?
Even if it might do so, a point which will be considered more
fully later, the problem is raised whether this is a legitimate method
of approaching such cases. It involves utilizing the Hedley Byrne
case in a different way 8 Furthermore it would result in a revolution
as far as Donoghue v. Stevenson type duties and liabilities are con-
cerned. Under that case the manufacturer’s duty was to take reason-
able care that his product was safe for an ultimate and foreseeable
consumer. In some circumstances it might be sufficient if he pro-
vided an adequate warning, just as the occupier might discharge his
duty to certain types of visitors by such a warning. In other cases
however, a warning might not be enough; something more positive
might have to be done to ensure the safety of the product. Once
there is negligence in the manufacture of the product, however, this
could be transformed into a negligent failure to warn an ultimate
consumer of the dangerous character of the product, so that liability
could be founded not upon negligent manufacture, but upon negligent
misrepresentation. In other words, when the manufacturer knows or
ought to know that there has been a lack of care in the manufacture
of his product, he is under a duty to provide clear warning of possible
97 Ibid., 1216.
98 This the Supreme Court did not do, but possibly because it was never
“suggested” to them that they should: See the language of Ritchie J., ibid.,
1214; cf. Laskin J. (dissenting), 1218.
McGILL LAW JOURNAL
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danger. This could be extended possibly to others, much as the
Donoghue v. Stevenson doctrine itself has been extendedY0 His
failure to do so is a distinct act of negligence of the Hedley Byrne
type, upon which alternate or additional liability could be founded.
This may seem to be unnecessary in view of the breadth of liability
under Donoghue v. Stevenson. On the other hand it may be another
way to tackle the vexed question of economic loss arising out of the
physical infliction of damage. Mention of this leads to a new and
equally important aspect of this type of liability.
III. DAMAGES
What is recoverable in actions for negligent misrepresentation of
this kind? The answer given in the Porky Packers case related to the
“direct and foreseeable consequences of the town’s negligence”.1 00
Itemized this proved to be: a) “costs incurred by the company for
land, construction of the building and installation of fixtures”; b)
“local improvements and utilities”; c) “watchman’s expenses”; d)
“interest”; e) “costs to be incurred for removing the company’s
chattels from the premises”. 101 Certain other losses were alleged and
claimed for by the plaintiffs, but not allowed by the Court, despite the
success of the plaintiff’s action. Notable among these were the costs
of closing the present plant and opening the new one, as well as
general damages for loss of business reputation. Nor were the
estimated costs of purchasing new land and attendant costs in
connection with the erection of another building included in the
final damages awarded by the Court against the municipality.02
It is clear that in this sort of case the loss suffered by the
plaintiff is purely economic and is never likely to be physical.
Though there are pre-Hedley Byrne and post-Hedley Byrne cases in
which physical injury has resulted from a negligent misrepresenta-
tion, O3 those instances would have resulted in liability even without
99 Particularly as expanded by the Supreme Court of Canada, through
LaskinJ., in Lambert v. Lastoplex Chemicals Co. Ltd (1971) 25 D.L.R. (3d)
121, 124-125. Cf. also the language and decision of the Judicial Committee of
the Privy Council in Distillers Company Ltd v. Thompson [1971] 1 All E.R.
694, discussed, in relation to another matter, in G.H.L. Fridman, Where is a
Tort Committed? (1974) 24 U.of T. L.J. 247, 260-261.
100 Supra, note 41, 97.
101 Ibid.
102 Ibid., 88, 98-100.
03 Sharpe v. Avery [1938] 4 All E.R. 85; Clayton v. Woodman & Sons [1962]
2 Q.B. 533; Grange Motors v. Spence [1969] 1 W.L.R. 53; Robson v. Chrysler
Corp. (1962) 32 D.L.R. (2d) 49.
1976]
NEGLIGENT MISREPRESENTATION
the doctrine of the Hedley Byrne case, which suggests that they may
be dealt with under the basic doctrine of Donoghue v. Stevenson,
without recourse to the newer notion of negligent misrepresentation.
The Hedley Byrne case has been used, judicially and by writers, to
support a new outlook on liability for economic loss.’0 However,
granted that there is now recognized recovery in cases of pure
economic loss, two problems still remain: Firstly, whether the oc-
currence of economic loss is sufficient to establish liability; secondly,
given that there is liability, how extensive the recovery in respect
of the economic loss actually suffered will be.
The first issue seems to have been resolved by Laskin J. in the
Welbridge case,”” when he said that liability could not be based
merely on the fact that economic loss would foreseeably result to
the plaintiffs in consequence of an invalid act on the part of the
defendant municipality. Foresight of harm, even of the particular
harm incurred, is not enough unless there is a duty to prevent such
harm and a subsequent breach of that duty. On the other hand, the
decision whether or not a duty exists must be based to some degree
upon the foresight of the defendant of the kind of harm suffered
by the affected person. This surely is the burden of The Wagon Mound
(No.l),0 6 and even earlier, of Bourhill v. Young.’0 7 Unforeseeable
damage to an unforeseeable plaintiff gives rise to no liability. Hence
the arguments put forward earlier against the attitude towards the
unincorporated company expressed in the Welbridge and Porky
Packers cases.
This leads to the second issue. How extensive will be the defen-
dant’s liability, once it has been shown that he owed a duty, foresaw
the kind of damage suffered by the plaintiff, and failed to exercise
reasonable care? The resolution of the Porky Packers case reveals
that not all actual loss will be recoverable. There are limits, based
presumably upon the same principles of law as would be applicable
to a claim for physical injury, or the economic consequences of any
such injury. Directness and foreseeability are the tests. Some of the
various aspects of the problem of economic loss have been discussed
at length in recent cases and in different legal periodicals.’ 8 With
the broader ramifications of this problem I am not concerned in
104See e.g., C. Harvey, supra, note 53; P. Atiyah, Negligence and Economic
Loss (1967) 83 L.Q.R. 248; L.L. Stevens, Negligent Act Causing Pure Financial
Loss: Policy Factors at Work (1973) 23 U.of T. L.J 431; and cases cited therein.
‘o5 Supra, note 48.
lo Supra, note 50.
107 [19433 A.C. 92.
108 See supra, note 104.
McGILL LAW JOURNAL
[Vol. 22
this article. But I am concerned with the question of limits. Since
economic loss is what is postulated, what is expected and what
must be guarded against by taking reasonable care, then it is no
answer to say only that economic loss was suffered. But is only such
economic loss as could have been foreseen as being likely to result
from the failure or neglect in question recoverable? Or will the net
be drawn more widely? If so, how? Possibly it is even more difficult
to define or delimit the consequences of a negligent misrepresenta-
tion than those of a physical act such as negligent driving. Thus far,
it is suggested, the courts have not had to contend seriously with the
problems. But if, for example, it is possible to obtain damages for
nervous shock or for being upset in an action for breach of contract,
as has been held in England,”0 9 would it ever be possible to recover
such damages in an action for negligent misrepresentation?110 And
if the plaintiff is to be limited to purely economic loss, how far will
this stretch? Certain expenditure is recoverable as is obvious from
the decided cases. But not all is recoverable as the Porky Packers
case shows; nor, apparently, is loss of bargain or profits.”,
This brings me back to the Rivtow case.””‘ The cost of the repairs
was not recoverable under what might be called “normal” Donoghue
v. Stevenson principles. Supposing the claim for such repairs had
been founded upon a negligent misrepresentation on the part of the
manufacturer? Let us assume for this purpose that the argument
propounded earlier as to the feasibility and correctness of such an
action in these circumstances has been conceded, and that the Hedley
Byrne doctrine can extend this far. Would it enable the plaintiff to
recover such loss in an action such as that brought in the Rivtow
case where a different action would fail? I would suggest, in the
light of the cases previously discussed in which actions for negligent
misrepresentation were successful, that the expense of repairs on
the part of the buyer of the defective crane would be precisely the
kind of loss that was foreseeable by, and therefore recoverable from,
the negligent manufacturer who failed to warn of the defects and
their consequences. Such expense was as direct and foreseeable as
the cost of the building in the Porky Packers1 b case, or the cost of
109 Cf. Jarvis v. Swans Tours Ltd [1973] 1 All E.R. 71.
110 Cf. the indecisive judgments in Guay v. Sun Publishing Co. [1953] 2
S.C.R. 216.
” “Out of pocket” expenses was the test applied in West Coast Finance
Ltd v. Gunderson, supra, note 19 and Uncle Ben’s Tartan Holdings Ltd v.
Northwest Sports Enterprises Ltd,.supra, note 85. But see Collins v. Haliburton,
Kawartha Pine Ridge District Health Unit, supra, note 34.
lia Supra, note 94.
Ilib Supra, note 41.
1976]
NEGLIGENT MISREPRESENTATION
the alterations in the case of Gadutsis v. Milne,112 or the extra tax
paid in the Myers case,13 to cite only a few examples. In most
Donoghue v. Stevenson type situations, no repair expenditure is
involved. There is loss in the form of a valuable product, and more
often than not, physical injury to the plaintiff’s person or to his
property. The Rivtow case provided a novel fact situation and a new
kind of damage. Nor can it be said, as was said of the loss of profit
in Weller v. Foot & Mouth Disease Research Institute,114 that it was
speculative or remote. The cost of repairing the defective crane was
perfectly foreseeable as a likely and probable consequence of the
manufacturer’s failure to warn. Its recovery was excluded on the
ground that it was not something which was normally recoverable
on Donoghue v. Stevenson principles, since it was neither physical
damage nor consequent economic loss of the usual kind, i.e., loss of
profit through the non-availability of the chattel purchased to make
a profit. But had the action been in contract such loss would pre-
sumably have been recoverable.115 Why not, then, in an action for
negligent misrepresentation, if one could be launched in such cir-
cumstances and on such a foundation?
This suggestion leads to the further thought that actions for
negligent misrepresentation may resemble actions for breach of con-
tract more closely than actions for negligence in tort. This in turn
leads to the more general question of the status of this action now
and more particularly in the future.
IV. FUTURE DEVELOPMENTS
The past few years, as the foregoing survey has attempted to
show, have witnessed the gradual acceptance and to a limited extent
the maturation of liability for negligent misrepresentation; what was
once regarded as an impossibility has come to pass: even in the
absence of a contract between the parties a duty of care may arise
regarding the way one speaks or writes to another. The judgments
in Hedley Byrne”6 show that what was being done in that case was
not the final, definitive statement of the law on this matter, but a
general and indicative presentation of the attitude that the law
should adopt. The cases since that date reveal that there remain
several queries as yet unanswered regarding the scope and effects
112 Supra, note 47.
13 Supra, note 30.
114 [1966] 1 Q.B. 569. Cf. the cases cited supra, note 111.
115 Cf. G.H.L. Fridman, Sale of Goods in Canada (1973), 376-382.
” Supra, note 1.
McGILL LAW JOURNAL
[Vol. 22
of this kind of liability. What may be asked at this stage is the
question: Where is the law going in relation to this form of liability?
One possibility is that in some situations this kind of liability
will provide an alternative to liability in contract. In other words,
where there is an absence of consideration so that it is not open to a
court to find a contractual relationship between the parties which
imposes duties and creates rights, a court might be able to discover
a relationship involving at least a duty of care, so that one party
may be held liable in the event of negligence. The development of the
law relating to promissory estoppel since 1947 when the High Trees
case”17 was decided, has led to a situation in which a promise or
representation not supported by consideration may provide a de-
fense to, but not give rise to, a distinct course of action. To some
extent this has acclimatized the courts to the idea that some state-
ments or representations may have legal effect even if they are
neither fraudulently nor negligently made, and even if they relate to
future action on the part of the representor. Whilethe courts have
not yet gone so far as to use such representations as a foundation
for a positive action, as a “sword” rather than a “shield”, they have
at least accepted that some result flows from such statements. 18
Perhaps the doctrine of liability for negligent misrepresentation
under Hedley Byrne could be employed to amplify and to a certain
extent complete the doctrine of promissory estoppel, so as to enable
parties who have arranged their affairs in reliance upon the state-
ments of another to take positive action for damages (in the style
of the modem American approach),” l9 as well as having a defense
when sued upon the basis of pre-existing formal legal rights which
have been modified by representations.
There are, of course, limitations to this. Firstly, only a fraudulent
or negligent misrepresentation would have such effect. Secondly,
the statement would have to be in the form of advice, counsel or
information rather than a promise or undertaking as to the future,
stricto sensu. Thirdly, there would have to be facts which evidenced
the sort of “special relationship” or “relationship akin to contract”
to which reference has been made previously, notably in some of the
judgments in the Hedley Byrne case. However, these limitations could
be interpreted very flexibly, if the courts were so inclined. As indicat-
117 Central London Property Trust Ltd v. High Trees House Ltd [19473
K.B. 130.
118For discussion of this see G.H.L. Fridman, Promissory Estoppel (1957)
35 Can.Bar Rev. 279; The Basis of Contractual Obligation (1974) 1 Loyola
U.L.Rev. (LA.) 1; and the cases and articles therein cited.
11 American Law Institute, Restatement (Second) of Contracts, para.90.
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NEGLIGENT MISREPRESENTATION
ed earlier, there does not appear to be a strong trend in this direction,
but that might change, especially if the courts begin to realize how
useful a weapon they have forged.
Such an approach would tend towards the greater assimilation
of contract and tort or, to put it more correctly, towards the greater
assimilation of contractual and tortious remedies. There is at least
one other stumbling block impeding such progress: It is the notion
that where there is a contract there cannot be a tort remedy for
negligent misrepresentation. I have already considered and I hope
disposed of that proposition. If it can be overcome then there might
be great scope for a development of this kind. It would mean that
the action for negligent misrepresentation might well become (if it
has not already moved that way) an alternative type of action for
breach of contract, applicable in some very special instances. The
writer can see nothing harmful in such a development and much that
is beneficial. Contract may not be dead, as Professor Gilmore has
recently suggested, 20 but in England and Canada at any rate, it has
not shown many signs of liveliness. This suggested use of the
Hedley Byrne case could be a way of bringing some sort of vivacity
into an area of law that is becoming archaic, ossified and more and
more out of touch with the realities of social, commercial and eco-
nomic life.
A second possibility, perhaps the most conservative and limited,
is that this liability is going to be looked upon, as may already be
the case, as merely another illustration of the operation of the
Donoghue v. Stevenson doctrine;’ 21 in other words, the “neighbour”
principle of Lord Atkin, applied within the maybe narrow confines
of a special relationship when it comes to a duty of care in respect to
the spoken or written word. Once again, there are indications in at
least some of the judgments in the Hedley Byrne case that this is
what their Lordships had in mind, reinforced possibly by the later
opinion of the Judicial Committee in the Evatt case. If this is all
that the Hedley Byrne case achieved, or is regarded as having
achieved, then while some advance may have been made towards
broader negligence liability, and while one previously unoccupied
area of legal activity has been taken over, the change will have been
minimal. Liability for negligent misrepresentation will have to be
fitted into the general scheme of liability for negligence, and it will
not be usable for any grander or more extensive purposes. Particular-
ly if the restrictions which have already been considered are allowed
120 G. Gilmore, The Death of Contract (1974).
121Supra, note 2.
McGILL LAW JOURNAL
[Vol. 22
to stand, this highly original notion will be so attenuated as to serve
only the most limited of uses, and be available only in the most
special and rare instances. There may have been a number of cases
in which recourse has been had to Hedley Byrne by an injured party,
but as already noted, success has not always come the way of the
plaintiff. When it has come, it has not always been as complete as
he may have wanted or deserved. Consequently, far from being a
liberating doctrine, improving the legal position of injured parties,
it may turn out to be an illusory development, purporting to offer
more than is actually provided by the language in the Hedley Byrne
case.
The final prospect is that liability for negligent misrepresentation,
while remaining firmly entrenched in tort, will be treated as a
separate and distinct variety of negligence. This would mean that it
would be possible to speak of the tort of negligent misrepresentation
(or, if fraud were to be included within this category of liability,
the tort of misrepresentation). At the present time, notwithstanding
the generalized Donoghue v. Stevenson principle, it is possible to
make a distinction between particular types of negligence such as
occupier’s liability, employer’s liability etc., and individual kinds of
negligence which relate to, and incorporate certain of the rules and
principles of, general negligence liability, but which are also re-
gulated by specific subsidiary rules of their own.m An example of
this are suggestions that liability for nervous shock may be a sub-
variety of negligence which should be handled by the law of tort in
a slightly different way from what might be called “ordinary”
negligence.
Thus in place of the synthesis of negligence which may have been
stimulated by the judgments in Donoghue v. Stevenson, especially
that of Lord Atkin, we may be reaching a new analytical approach
to negligence that does not repudiate the Atkin doctrine, but builds
upon it for greater refinement and improved protection. Such an
approach would not be reactionary; it would not amount to a re-
turn to the more disjointed attitude of the law in nineteenth century
England. Rather, it would be capable of providing greater flexibility
and more precision. For one thing, it might encourage a better
attitude towards problems of remoteness and calculation of damages
in respect of economic loss resulting from negligent misrepresenta-
tion. Since the courts would not be bound by the rules pertaining
‘2E.g.,
in the case of occupiers’ liability in Alberta and England, possibly
even rules stated in a statute: See The Occupiers’ Liability Act, S.A. 1973, c.79
and Occupiers’ Liability Act, 1957, 5-6 Eliz.II, c.31 (U.K.).
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NEGLIGENT MISREPRESENTATION
to physical injury or consequent economic loss resulting from such
injury, they might be in a better position to cope with the special
and specific problems arising from the infliction of damage by
misrepresentation. It might also permit courts to approach such
matters as “foresight” and “directness” from the special and dif-
ferent point of view of the particular problems involved in negligent
speech and negligent writing, without being obliged to follow the
trends and precedents of the law as it pertains to other categories
of negligence, for example automobile accidents. There is a limit,
after all, to the resemblances that can be made between such an
accident and the harmful consequences of faultily given advice or
information. To put all such matters equally within the straitjacket
of the “ordinary” law of negligence might be detrimental to the
proper application of the law and to its most valuable lines of
development.
What has been written in the immediately preceding paragraphs
is not intended to be an exhaustive account of what could happen
in this area of the law; nor is it designed to deal with all the present
and future problems arising in connection with liability for negligent
misrepresentation. What I have endeavoured to do is to provide
some thoughts which might stimulate further, more detailed inves-
tigation of this newly opened field of legal activity. Clearly, although
I have not emphasized them to any degree, there may be dangers in
too wide and untrammelled an application of the Hedley Byrne
doctrine. It would do no good to eradicate one source of difficulty
from the law at the expense of creating new sores or opportunities
for dissatisfaction. Development of the law of torts wholly in favour
of potential plaintiffs should not be permitted if it will create the
possibility of too many and too diffuse a group of potential de-
fendants. In other words here, as elsewhere in the law of torts, a
proper balance must be kept between granting a remedy where
damage has been suffered, and protecting from liability people who
may have inflicted harm but do not thereby merit condemnation by
being made to underwrite the loss that has resulted. What may sound
all very well in theory therefore, may have to be sacrificed to what is
expedient and practical. This choice must be left to the courts; but
it is to be hoped that in making it, they will be actuated by a desire
to achieve logical consistency and to maintain the validity of juridical
principles.
