The Problem of the Applicability of Tort Liability to
Negligent Mis-statements in Contractual Situations:
A Critique on the Nunes Diamonds and Sealand Cases
C. R. Symmons *
As Winfield wrote in 1931, “there is no tort more likely to co-
exist with breach of contract than negligence. In a great number
of instances a contractor fails in what he has promised because
he has acted incompetently”.1 There are, he said, “a large number
of cases in which the foundation of the action springs out of privi-
ty of contract between the parties, but in which nevertheless the
remedy is alternatively in contract or in tort”.la
Historically, nowhere was this overlap of the two branches of
the civil law more evident than in the case of the so-called “com-
mon callings”, where tortious liability was not ruled out purely
by the fortuitous concurrence of a contractual remedy. Such ex-
ceptions as existed, and still do exist, to this overlap, e.g., the pro-
fessions of stockbroker, architect and solicitor, are anomalous
and not all of long-standing creation2 Thus, it is not surprising
to find the judicial admission in Jarvis v. Moy, Davies and Co.
(concerning the liability of stockbrokers) from Greer L.J. that “It
does not follow.., that there may not be cases… where, in order
to found a case in tort, it may be essential as part of the history to
allege that it commenced by a contract” 3
It
is also not without significance that this “contract only”
rule relating to solicitors received a judicial hammering from Lord
Haldane in Nocton v. Ashburton, a a 1914 House of Lords decision.
* LL.B. Barrister-at-Law, Lecturer in Law at Bristol University. My thanks
are due to my. colleague, Mr A. M. Dugdale, whose assistance has been
invaluable in the composition of this article, and to Messrs A. D. Yates and
H. G. Beale for their comments thereon.
I Winfield, The Province of the Law of Tort (1931), 63.
la Ibid., 65.
2 See Poulton, Tort or Contract (1966) 82 L.Q.R. 346.
3 [1936] 1 K.B. 399, 405. In the Scottish case of Robertson v. Bannigan [1965]
S.L.T. 66, 67, Lord Hunter opined that, although the relationship of solicitor
and client might originate from contract, professional negligence could still
lead to an action in delict; as he said, “I cannot see any ground for distinguish-
ing in this respect between the relationship between the solicitor and client,
on the one hand, and that of doctor and patient on the other…”.
sa [1914] A.C. 932.
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This case was ultimately used as the lynch-pin for the formulation
of the “special relationship” in negligent mis-statement by the
same court in Hedley Byrne3b As Lord Haldane stated:
… the solicitor contracts with his client to be skilful and careful. For
failure to perform his obligation he may be made liable at law in contract
or even in tort, for negligence in breach of a duty imposed on him. In
the early history of the action of assumpsit this liability was indeed
treated as one of tort.4
A strong affirmation of the contract/tort overlap is to be seen
in the recent Australian case, Ellul v. Oakes, where in response to
the contention that Hedley Byrne did not apply at all where there
was a contract following a misrepresentation, Zelling J. stated:
Causes of action have overlapped for centuries in the law, and always
there has been this cry that there ought to be only one cause of action
arising out of a given set of facts. It was so when assumpsit superseded
debt, it was so when trover and later conversion superseded detinue, and
there are many other such examples. The fact is that the same set of facts
may give rise to a number of causes of action and the plaintiff elects which
one will best enable him to win his case or gives him the better measure
of damages as the case may be.4a
Just as the potentiality of this tort/contract overlap has been
enhanced by the continuing process of the expansion of the cate-
gories of “duty” situations in the sphere of negligent acts, so too
has the same process been even more enhanced since Hedley Byrne
in the sphere of negligent words , –
the common vehicle of harm
in professional negligence cases – where often a contractual rela-
tionship will exist. Prior to Hedley Byrne and its principle of lia-
bility in tort, liability for negligent words causing economic loss was
3b Hedley Byrne & Co. Ltd. v. Heller & Partners Ltd. [1964] A.C. 465, [1963]
2 All E.R. 575.
4 Supra, f.n.3a, 956 (italics added). It is ironic that the absence of a con-
tractual nexus between barrister and client was once thought to be the reason
for a bar to proceedings in tort against a negligent barrister; but see now
Rondel v. Worsley [1969] A.C. 191 (H.L.), and the recent New Zealand case of
Rees v. Sinclair [1973] 1 N.Z.L.R. 236, 240 (1st inst.); [1974] 1 N.Z.L.R. 180, 186
(CA.) (solicitor as advocate). In the recent English case of McInerny v.
Lloyds Bank [1973] 2 Lloyds Rep. 389, 401, Kerr J. rejected counsel for the
defendant’s ingenious argument, based on Lord Devlin’s “equivalent to con-
tract” dictum in Hedley Byrne, that if on the facts there was no liability in
contract because no intention to contract could be inferred, this was also the
end of the case in tort, and that, in view of the situation of proximity in which
they were placed in the facts of the case, there could thus be no liability in
negligence.
-4a [1972] 3 S.A.S.R. 377, 390 (S. Austr. Sup. Ct.); see also the dictum of
Wells J., 393.
5 Poulton, supra, f.n,2, 364.
Ga See Dillingham Constructions v. Downs [1972] 2 N.S.W. L.R. 49, 58.
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NEGLIGENT MIS-STATEMENTS
confined (apart from fraud) to situations where there was a contrac-
tual duty, or a fiduciary relationship such as would be recognized in
equity0 It would therefore appear to have been safe to say soon
after the Hedley Byrne decision that:
Since Donoghue v. Stevenson there has been general liability for acts which
are foreseeably likely to cause damage; and the fact that the parties are
in contractual relationship should not affect the plaintiff’s right to sue
in tort. Hedley Byrne … imposed liability in some circumstances for
negligent statements: again this liability should not depend upon the
absence of a contract between the parties.7
Certainly there are no dicta in Hedley Byrne itself to gainsay
such a predicted development; indeed, as will be seen, there are
dicta seemingly to the contrary.” Just as there is a judicial view
expressed that Hedley Byrne “was very much nearer contract than
tort”,9 so too there have been academic doubts about whether
the new action does really lie within the traditional ambit of tort.10
It would be ironic indeed if, just as in the earlier development
of negligence law the absence of a contractual relationship was
in some circumstances an effective bar to a claim in tort,1
the
presence of a contractual relationship between the parties in a
negligent mis-statement situation should now rigidly rule out tor-
tious liability.’2 Yet this appears to be the way the law is drifting
in Canada as the result of two recent cases: Nunes Diamonds Ltd.
I See Candler v. Crane, Christmas & Co. Ltd. [1951] 1 All E.R. 426.
7 Poulton, supra, frn.2, 364. In the most recent case decided in England on
the applicability of Hedley Byrne to the contractual situation, Esso Petroleum
v. Mardon, The Times, Aug. 2, 1974 (1st inst.), Lawson J. stated that the fact that
personal injuries or damage to property could give rise to a claim for neglig-
ence, even though the parties’ relationship had arisen solely out of contract,
indicated that in principle there was no reason to limit the duty of care in
making statements to circumstances which did not result in contractual
relations between the maker and the hearer of the statement.
8Thus in the Esso Petroleum case, ibid., Lawson I. rejected any assumption
from the decision in Hedley Byrne that a statement made in the context of
pre-contract negotiations excludes a duty of care. Not only did he find that
this assumption was not justified, taking into account the speeches in Hedley
Byrne as a whole, but also that the observations of Lord Devlin in that case
were a clear indication against this assumption.
9 The World Harmony [1967] P. 341, 362 per Hewson J.
10 Stevens, Hedley Byrne v. Heller: Judicial Creativity and Doctrinal Possi-
bility (1964) 27 M.L.R. 121, 161.
109, 152 E.R. 402.
“E.g., under the rigid rule in Winterbottom v. Wright (1842) 10 M. & W.
12In Candler v. Crane, Christmas, supra, fan.6, 179, Lord Denning (dissenting)
described the submission that the defendant accountants were under a purely
contractual duty to their clients, and therefore not liable in tort to someone
outside the contract, as “simply a repetition of the nineteenth century fallacy…”.
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v. Dominion Electric Protection Co. (decided by the Supreme Court
of Canada in 1971),13 followed at first instance in the British Co-
lumbia Supreme Court in Sealand of the Pacific v. Ocean Cement
Ltd.14
Nunes Diamonds
In this case the plaintiff diamond merchant’s safe was protected
by the defendant’s alarm system, which was as good as any sys-
tem in commercial use in Canada. After a burglary at the pre-
mises of another diamond merchant who was protected by the
same system as that supplied to the plaintiff, the plaintiff asked
the defendant to send someone to inspect the system. The work-
man sent by the defendant asserted during his inspection of the
plaintiff’s installation that “even our own engineers could not go
through this system without setting an alarm”. Copies of two
letters written by the defendant’s general manager were also sent
to the plaintiff company, the originals having been sent to in-
surance brokers shortly after the theft at the other diamond
merchant’s premises. The letters stated that an investigation was
still continuing, that no conclusions had been reached, that “the
system performed its functions properly” and that every effort
would be made to find an answer to the burglary. There was no
further communication after this to either the plaintiff or the
brokers before thieves broke into the plaintiff’s safe by circum-
venting the alarm and stole a large quantity of diamonds.
The contract between plaintiff and defendant merely stipulated
for the supply of certain equipment and the performance of cer-
tain services for a rental price. It expressly negated the existence
of any “conditions, warranties or representations”, provided that
the defendant was “not an insurer” and limited liability under
the contract to $50 as “liquidated damages”. The plaintiff, alleging
reliance on both the workman’s representation at the time of the
inspection and the statements in the letters to the brokers, sued
the defendant in both contract and tort.
On an appeal to the Supreme Court of Canada from the judgment
of the Ontario Court of Appeal, 4 which had dismissed an appeal
from a judgment of Addy J. at first instance, 4b the plaintiff failed in
an action for damages for breach of contract and tort. By a nar-
row majority (Spence and Laskin HI. dissenting), the Supreme Court
13 (1972) 26 D.L.R. (3d) 699.
14 (1973) 33 D.L.R. (3d) 625.
14a (1971) 15 D.L.R. (3d) 26.
14b (1969) 5 D.L.R. (3d) 679.
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NEGLIGENT MIS-STATEMENTS
held, in the judgment of Pigeon J. (Martland and Judson JJ. con-
curring) not only that there was no contractual liability, but also
no tortious liability. The broad reason for finding no tortious lia-
bility, i.e., that liability in tort could only be based on a tort un-
connected with the performance of the contract, forms the basis
of discussion in this article.
Sealand of the Pacific Ltd. v. Ocean Cement Ltd.
In this case the plaintiff (Sealand) was the owner of an oceana-
rium, a large part of which was housed in a special ship surrounded
by tanks containing various forms of sea life. These tanks were
viewable from a special area built into the bowels of the ship by
means of windows, and a charge was made for viewing. The ship
had been expertly designed by a naval architect, and when Sea-
land made additional changes to the ship adding to its overall
weight, the architect warned Sealand that the reserve buoyancy
would have to be increased. After discussions with other experts,
Sealand decided to displace some of the water in the tanks and re-
place it with a lighter than sea water substance. Sealand accordingly
arranged a meeting to discuss the sea water substitute at which
Robinson, the sales representative of the defendant Ocean Cement,
recommended without any reservation a light-weight concrete (“ze-
nolite”) made by his company as suitable for the job. Sealand
then contacted the second main defendants in the case, McHaffie
and his company, McHaffie Ltd., asking him to do the design work
for the proposed modifications and to act as supervising engineer.
McHaffie met Robinson and discussed the properties of zenolite
concrete. It was agreed that Ocean Cement would mix and supply
the cement in the quantities specified by McHaffie, but that an-
other firm would do the actual pouring and finishing at the site.
Prior to the start of the work, Sealand asked McHaffie to consider
whether styrofoam would not be a more suitable replacement sub-
stance than the concrete: McHaffie recommended the concrete.
After the concrete had been installed, however, the ship settled
even deeper into the water. The trial judge, McKayJ., found
saturation of the cement by water to be the effective cause for
this. He held that Ocean Cement was liable in tort under the
Hedley Byrne principle for Robinson’s representations about the
concrete, and liable in contract under s.20(a) of the 1960 Sale
of Goods Act 14c for breach of an implied condition that the goods
14e R.S.B.C. 1960, c.344.
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were reasonably fit for the required purpose. The claim against
McHaffie and his company, seemingly based on both contract and
tort, was dismissed: McKayJ. held that McHaffie was not per-
sonally liable under the Hedley Byrne principle and had not fallen
beneath the degree of skill, care and judgment which could reason-
ably be expected of a person in his profession. He and his com-
pany were entitled to rely on Robinson’s representations.
The Problem Arising from the Above Cases
The basic difficulty arising from these two cases is how, if at all,
the tortious liability postulated in Hedley Byrne can arise where there
exists a contractual relationship. The problem centres round a dictum
of Pigeon J. in Nunes Diamonds, which was approved and applied
by McKay J. in Sealand, to the effect that
… the basis of tort liability considered in Hedley Byrne is inapplicable
to any case where the relationship between the parties is governed by a
contract, [14d] unless the negligence relied on can properly be considered as
“an independent tort” unconnected with the performance of that contract,
as expressed in Elder, Dempster & Co. Ltd., v. Paterson, Zochonis & Co.
Ltd., [1924] A.C. 522 at p. 548.15
Pigeon J. qualifies this statement to some extent by stressing
that this point was “especially important in the present case on
account of the provisions of the contract with respect to the nature of
the obligations assumed and the practical exclusion of responsibility
for failure to perform them”. 6 The general tenor of his judgment
and his definition of acts “independent” of the contractual relation-
ship, however, leave little or no scope for the Hedley Byrne principle
to flourish in contractual situations. Such an interpretation of his
judgment is to be found in the dissenting minority judgment given
by Spence J. in the same case. He stated, “I cannot agree that the
mere existence of an antecedent contract foreclosed liability under
the Hedley Byrne principle.”‘ 7 A similar far-reaching interpretation
of Pigeon J.’s dictum was expressed in the Sealand case. McKay J.
accepted the argument, following Pigeon J.’s test, that liability of
McHaffie and his company would have arisen out of the contract
14d In the very recent case of Porky Packers Ltd. v. Town of Pas (1974) 46
D.L.R. (3d) 83, the Manitoba Court of Appeal has distinguished Nunes Diamonds
on the basis of the contract not being so governed: see infra, f.n.137.
15 Supra, f.n.13, 727, 728.
16 Ibid.
17 Ibid., 723; he admits, however, at 703, that the question of the defendant’s
liability in tort was a “very troublesome question”.
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NEGLIGENT MIS-STATEMENTS
and therefore the Hedley Byrne principle could not be applied to
McHaffie personally for his expressed opinion that zenolite concrete
was to be preferred to styrofoam.18 Moreover, as regards the tortious
liability of Ocean Cement for Robinson’s representation, he applied
the converse of Pigeon J.’s dictum, stating that the representation
“was made months before any contractual arrangement was entered
into”, 9 so that the Hedley Byrne principle could apply. The authority
for Pigeon J.’s principle will now be examined.
Elder, Dempster Case
The only authority cited by Pigeon J. to support his restrictive
view was the House of Lords decision in the Elder, Dempster case 1 9a
which concerned the exclusion of liability under a bill of lading, an
area very different from mis-statement. This case is some authority
for saying that where the defendant has protection from liability
for certain acts under the terms of a contract to which he is not a
party, and he performs such acts negligently, the plaintiff (who is
a party) may be unable to disregard the terms of the contract and
allege against him a wider liability in tort. Judging from the page
reference in Elder, Dempster which he cited, Pigeon J. must have
been referring to that part of Viscount Finlay’s judgment which
dealt with the question of whether the owners of the palm oil barrels
(the plaintiffs) could sue the shipowners “apart from the contract
altogether” for the negligent destruction of their goods on board a
chartered ship. The defendant shipowners were not a party to the
bill of lading which limited liability. As Viscount Finlay said,
If the act complained of had been an independent tort unconnected with
the performance of the contract evidenced by the bill of lading, the case
would have been different. But when the act is done in the course of
rendering the very services provided for in the bill of lading, the limitation
of liability therein contained must attach, whatever the form of action
and whether owner or charterer be sued. It would be absurd that the
owner of goods could get rid of the protective clauses of the bill of
lading in respect of all stowage, by suing the owner of the ship in tort.2 0
It should be noted straight away that Viscount Finlay was not
denying the concurrence of tortious and contractual liability. He was
18Supra, fmn.14, 634.
19 Ibid., 633. For further discussion, see infra.
19a Elder, Dempster & Co. Ltd. v. Paterson, Zochonis Co. Ltd. [1924] A.C. 522.
20 Ibid., 548; cf. 564, the words of Lord Sumner (“entirely independent of
contract”).
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merely stressing the point that on the particular facts, the limitation
of liability would apply irrespective of the type of label used to
categorize the plaintiff’s action, except in the case of an “indepen-
dent” tort, on which he failed to elaborate.2′ Thus, Pigeon J. seems,
with respect, to be construing Viscount Finlay’s words beyond their
intended meaning, for Viscount Finlay was not ruling out the idea
of “connected” tort.
This apart, though, the “very obscure” 22 ratio of Elder, Dempster
has already met with disapproval from the House of Lords in the
1962 case of Scruttons v. Midland Silicones Ltd.a2 Here, interestingly,
Lord Denning failed to evince his usual disregard of awkward pre-
cedent, and attempted to explain away the decision, inter alia, on
the basis that “at that time negligence was not an independent
tort”,23 and that contract and tort liability were then interconnected.
Furthermore, in 1953 the Court of Appeal in White v. John Warwick
& Co. Ltd.2 had made it quite clear that in the light of the contra
proferentem rule, a contractual exclusion would not necessarily
exclude concurrent tort liability unless it was couched in sufficiently
wide and unambiguous terms. Indeed, the case was cited to em-
phasize this very point by Addy J. at first instance in Nunes Dia-
monds.2 5 The Elder, Dempster case, therefore, has no direct bearing
on the substantive issue of the extent of co-existence of actions
in tort and in contract for negligent acts, and still less for negligent
words. Thus, authority for a proposition such as that enunciated
by Pigeon J. must be sought elsewhere. However, only one English
21Lord Denning in Scruttons v. Midland Silicones [1962] 1 All E.R. 1, 18,
did elaborate on what he thought Viscount Finlay meant by “independent”:
“For instance, if the shipowner owned another ship which negligently ran into
this one, that would be an independent tort for which the shipowner would
be liable: and the exceptions would not avail him.”
22 So described by Lord Reid in Scruttons, ibid., 12. It is significant that the
Elder, Dempster principle was not applied in the important Canadian mis-
statement case of Dodds v. Millman (1965) 45 D.L.R. (2d) 472, where a pur-
chaser was held able to sue in tort the vendor’s real estate agent for a mis-
statement over the capability of the apartment building subject to the sale
to produce a profit; the “escape clause” in the contract between purchaser and
vendor, which protected the latter, was held not to afford any protection to
the agent who was not a party.
22a Supra, f.n21.
23Ibid., 18.
24[19531 2 All E.R. 1021. See also Hollier v. Rambler Motors [1972] 1 All
E.R. 399.
25 Supra, f.n.14b, 688, 689,
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NEGLIGENT MIS-STATEMENTS
decision after Hedley Byrne,26 and that at first instance, gives any
support to the proposition: the case of Clark v. Kirby-Smith, 7 which
was not cited in Nunes Diamonds at any stage.
Clark v. Kirby-Smith
In this case an allegedly negligent solicitor was sued by the
client-plaintiff in contract and in tort for failing to renew the option
on a lease. The claim was also pleaded in tort because it was
conceded that part of the damages claimed could only be awarded
in tort. As a result, plaintiff’s counsel tried to avoid the weight
of previous authority to the effect that a solicitor (not being,
historically, engaged in a “common calling”) could only be sued for
negligence ex contractu by a client; he argued that the decision in
Hedley Byrne had cut across this occupational distinction and
as a contract of retainer existed between solicitor and client, a
solicitor ought not to be put in a better (“worse” in the Law Reports
is surely a misprint) position than a person in a relationship “equiv-
alent to contract” as envisaged by Lord Devlin in Hedley Byrne.2 8
As Plowman J. said:
[Counsel] for the plaintiffs claims to recover.., on the basis that this is
an action founded in tort. He argues that the result of the decision of the
House of Lords in [Hedley Byrne] is that negligence is a tort whether it
arises out of negligent mis-statements made by a person who is not under
any contractual or fiduciary obligation to give information or advice, which
26 Apart from the unsatisfactory obiter dictum in Oleificio Zucchi v. Northern
Sales [1965] 2 Lloyds Rep. 496, 519, from McNairJ. that “…as at present
advised, I consider the submission … that the ruling… [in Hedley Byrne]
applies as between contracting parties, is without foundation”. This dictum
was disapproved by ZellingJ. in the recent Australian case of Ellul v.
Oakes, supra, f.n.4a, 390, and by Lawson 1. in Esso Petroleum v. Mardon, supra,
f.n.7. Cf. the dictum of Rees J. in Vacwell Engineering v. B.D.H. Chemicals
[1969] 3 All E.R. 1681, 1697, 1698, to opposite effect outside the mis-statement
field:
Counsel for … [the defendants] indicated that he desired to keep open
the argument that, where the parties are in a contractual relationship,
their rights and obligations are governed by the terms of their contract
and it is not open to one of them to sue the other for a tort arising out
of the performance of the contract. I have not heard the argument and will
say no more than that it is a novel proposition. [Italics added]
See Greig, Misrepresentations and Sales of Goods (1971) 87 L.Q.R. 179, 193, 194.
27 [1964] Ch. 506; followed in the Canadian case of Schwebel v. Telekes
(1967) 61 D.L.R. (2d) 470 (concerning a negligence action against a notary
public in a contractual relationship) where Laskin3.J at 472 merely states
that the situation is “distinguishable from Hedley Byrne”.
28 Ibid., 509.
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represents the state of affairs with which the House of Lords was
concerned in the Hedley Byrne case, or whether, as here, it arises out of
the contractual relationship of solicitor and client. I do not accept the
argument that the Hedley Byrne case is an authority for saying that the
liability of a solicitor to his client for negligence is a liability in tort. A
line of cases going back for nearly 150 years shows, I think, that the
client’s cause of action is in contract and not in tort.2 9
This case is hardly authority for asserting that Hedley Byrne
does not apply to a contractual situation and that “it is clear that the
mere existence of a contract will prevent the founding of liability
for negligent mis-statement” Firstly, there was in Clark no question
of a negligent mis-statement3 l from the solicitor; he had merely
negligently omitted to renew the lease. Thus, plaintiff’s counsel’s
arguments could only be couched in the wider view that Hedley
Byrne had affected the law relating to professional relationships
generally.
Secondly, the only reason given by Plowman . for denying the
applicability of the Hedley Byrne principle was the anomalous histor-
ical precedent that a solicitor cannot be sued tortiously by his client,
a rule which now has no logical basis and is inapplicable in any case
to the so-called “common callings”.3 2 Furthermore, as already seen
in Nocton v. Ashburton,33 a solicitor/client case which did involve
a mis-statement, it was expressly stated by Lord Haldane that a
solicitor could be sued tortiously for negligence, and he surmised
that the plaintiff had not relied on his contractual right because of
29 Ibid., 510.
30 Glasbeek, “Limited Liability for Negligent Mis-statement” in Linden (ed.),
Studies in Canadian Tort Law (1968), 121. He cryptically qualifies this state-
ment by a footnote to the effect that “… even if there is a contract, there
may be a special relationship if the parties are connected in some particular
way”. He later asserts (at 130) that, where a mis-statement has become a
term of the contract, the plaintiff to succeed in tort “will have to show that
his cause of action does not emanate from the contract itself, but from the
relationship … which subsists regardless of contract”. This test is, with
respect, as unsatisfactory as that of Pigeon I. in Nunes Diamonds.
31Thus CusackIJ, in Dutton v. Bognor Regis U.D.C. [1971] 2 All E.R. 1003,
1008 (1st inst.), refused to apply the principles of Hedley Byrne because the
case was not one of negligent mis-statement at all in his opinion.
32See note by Jolowicz,
[1965] C.L.J. 27, 30, and the Scottish case of
Robertson v. Bannigan, supra, f.n.3. Weir, [1963] C.L.J. 216, 219, takes the
view that “that line of cases which held that the liability of the careless
broker, architect, solicitor or similar professional sounds only in contract
[by Hedley Byrne]”; see also Greig,
must have been silently overruled…
supra, f.n.26, 196.
33Supra, f.n.3a, 957.
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NEGLIGENT MIS-STATEMENTS
a difficulty over the Statute of Limitations, which would not have
applied if the statement of claim was “framed mainly on the lines
of breach of fiduciary duty”.3′ Thus, at most, the decision in Clark
v. Kirby-Smith is of limited validity with reference to the instant
problem.
There does exist one first instance case in Canada which gives
limited support to the “if contract, no tort” argument in the mis-
statement field: Reid v. Traders General Insurance Co.34 Strangely, it
was only judicially referred to at first instance by Addy J. in Nunes
Diamonds.
Reid v. Traders General Insurance Co.
Here the defendant car dealing company, through its salesman M,
made a contract with the plaintiff to sell her a car and look after
insurance for it. M filled out the insurance application form and in
so doing deliberately misrepresented a fact required to be stated
thereon. The plaintiff, to M’s knowledge, then signed the application
without reading it over. The plaintiff’s car was damaged in an
accident and the insurers resisted payment because of the mis-
representation in the application form. The plaintiff brought an
action, inter alios, against the car dealing company and M.
It was held by Ilsley C.J. that M and, vicariously, the car dealing
company owed a duty to the plaintiff to fill in the application form
truthfully, and were liable for breach of that duty quite independently
of contract, the car dealing company also being liable in the same
measure of damages for breach of contract. Thus, having found the
facts pleaded were sufficient to constitute an allegation of negligence,
Ilsley C.J. stated:
I respectfully adopt the principles of the recent and important House of
Lords case Hedley Byrne… . The application of these principles leads
me to the conclusion that whether or not there has been any contractual
relationship between Dares Motors [the dealers] and the plaintiffs, Dares
Motors through [M] would have owed the plaintiff a duty of care in
filling out the application form for the breach of which Dares Motors
would be liable to the plaintiff if injury resulted to her.35
Ilsley C.S. does, however, qualify this broad statement by con-
sidering whether the fact that the insurance transaction was tied up
with the car sale transaction resulted in a breach of duty arising
solely out of contractual obligations, in which event he understood
33a Ibid., 937.
34 (1963) 41 D.L.R. (2d) 148.
85 Ibid., 153 (italics added).
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“there would be no liability in tort on the part of Dares Motors or
M to the plaintiff”.36 He concluded, citing Jackson v. Mayfair Window
Cleaning Co.,3 7 that Dares Motors and M owed a duty independently
of contract to the plaintiff. As will be seen infra, his definition of
“independent” duty was novel, but the case does show at least some
potentiality of a contract/tort overlap for negligent mis-statement.88
It must now be seen whether Hedley Byrne itself and Mutual Life
Assurance Co. v. Evatt,3 9 both cited by Pigeon J. in Nunes Diamonds,
support such an overlap more fully.
Hedley Byrne and the Question of Contractual Overlap
Although on the facts of Hedley Byrne there was no contractual
nexus between the defendant bank and the plaintiff advertising
agents for whom the information as to the third party’s credit-wor-
thiness was supplied, there are sufficient dicta, particularly in the
judgment of Lord Devlin, to support the contention that even where
there is a contractual (or, for that matter, a fiduciary) 40 relation-
ship between the parties, a tortious “special relationship” may arise.
Pigeon J. in Nunes Diamonds implicity found no such authority,
and Schroeder 5. in the Ontario Court of Appeal in the same case
emphasized that “caution must be exercised not to extend its [i.e.
Hedley Byrne’s] scope beyond the peculiar factual and circum-
stantial framework of that case. There the relationship between the
parties was not contractual as in the present case.”4′ He concluded:
A contractual relationship would not necessarily preclude the parties from
bringing tortious actions against each other, but if the action were
founded on a negligent mis-statement, the plaintiff, in order to succeed,
would have to show that the cause of action did not emerge directly
36 Ibid, 154.
37 [1952] 1 All E.R. 215.
38 For recent cases in England which show the potentiality of a tort overlap
with contract in the mis-statement area without any criterion of “independent”
duty, see Coats Patons (Retail) Ltd. v. Birmingham Corporation (1971) 69
L.G.R. 356, where the defendants were held liable in contract and tort for
negligent mis-statement, and the Esso Petroleum case, supra, f.n.7.
39 [19711 A.C. 793, [1971] 1 All E.R. 150.
40 No fiduciary relationship was found to exist in Nunes Diamonds; see
Schroeder J.A., supra, f.n.14a, 37:
The contract in the present case is not one which established a fiduciary
relationship between the parties as between a solicitor and his client, or
a physician or surgeon and his patient, or a trustee and a cestui que trust;
see also Pigeon J. in Nunes Diamonds, supra, f.n.13, 727.
4’ Ibid., 36.
1975]
NEGLIGENT MIS-STATEMENTS
from the contract itself, but rather from a relationship existing between
him and the defendant which was brought into being by the contract. 2
A dictum such as Schroeder J.A.’s plays down to a low level the
direct relevance of contract to the Hedley Byrne principle, but does
show some interrelationship. Such an interrelationship is not sur-
prising if one accepts that the gist of the “special relationship” in
Hedley Byrne was the assumption of responsibility by the defendant,
as was stressed by Spence J.
in his joint dissenting judgment in
Nunes Diamonds43 It is indeed difficult to deny the view that there
are obvious points of similarity between a contractual promise and
an “assumption of responsibility” under Hedley Byrne.4
It may be
pointedly asked why in some circumstances a man should be
seemingly worse off as far as his rights in tort are concerned because
he has given consideration and purchased advice rather than having
received it gratuitously.45 To similar effect, Poulton has argued that
A man who is not liable if he is acting gratuitously may nonetheless be
liable in tort if he is acting for reward, for this is a factor in imposing a
duty of care… . This is clear from the speeches in [Hedley Byrne v.
Heller]4 6
It
is in Lord Devlin’s speech in Hedley Byrne that most support
for the contract/tort overlap in the “special relationship” is to be
found.4 a He formulated the “special relationship” in terms of a
situation “equivalent to contract”, 47 i.e., where but for the absence
of consideration there would have been a contract between the
parties. This has provoked the pithy riposte from Weir that “the
42 Ibid., 36, 37 (italics added). The Hedley Byrne principle had been speci-
fically invoked by counsel. Cf. Glasbeek’s test, supra, f.n.30. This statement
of the law by SchroederJ.A. was strongly approved by Zelling J. in Ellul v.
Oakes, supra, f.n.4a, 390, 391.
43 Supra, fmn.13, 720; he also thought the decision of Nocton v. Ashburton
was “enough to justify a decision in favour of the appellant” (ibid.).
44See Miller, Losses Caused by Incorrect Information or Advice (1971 Ford
Foundation Workshop paper, unpublished); summarized in (1972) 12 I.S.P.T.L.
186, 187.
45 Ibid.
46 Supra, f.n.2, 368, n.64 (italics added). Not only has the idea of liability for
gratuitous words been criticized (Gordon, Hedley Byrne v. Heller in the
House of Lords (1964) 38 A.LJ. 39), but also Weir expresses the view that
“[olne can hope, perhaps, that in most cases it wil continue to be ‘reasonable’
to rely only. on a word one has bought”: Liability for Syntax [1963] C.LJ.
216, 218.
46a See the dicta of Lawson J. in the very recent Esso Petroleum case, supra,
f.n.7, and the recent Canadian case of Walter Cabott Constructions Ltd. v.
The Queen (1974) 44 D.L.R. (3d) 82, 97, 98 (Fed. Ct., Trial Div.).
47 Supra, f.n.3b, 529.
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relationship most equivalent to contract is contract itself”. 8 Lord
Devlin drew heavily for this formulation on the judgment of Lord
Shaw in Nocton v, Ashburton, who used the words “circumstances in
which it was a matter equivalent to contract between the parties that
that duty should be fulfilled”. 49 Lord Shaw in turn relied on a dictum
from Peek v. Gurney!a to the effect that in certain circumstances,
… the representation in equity is equivalent to a contract and very nearly
coincides with a warranty at law; and in order that a person may avail
himself of relief founded on it he must shew that there was such a
proximate relation between himself and the person making the re-
presentation as to bring them virtually into the position of parties
contracting with each other.50
Lord Devlin expanded on his description of the “special relation-
ship” by deprecating the artificiality of the courts in striving to
find consideration, where there is really none, in order to impose
contractual liability on the defendant for his negligent mis-statement,
as in De La Bere v. Pearson.5′ He stressed the fact that even in tort,
the absence or presence of consideration is by no means immaterial
in determining the assumption of responsibility. He stated:
Where there is an express undertaking, an express warranty as distinct
from mere representation, there can be little difficulty. The difficulty
arises in discerning those cases in which the undertaking is to be implied.
In this respect the absence of consideration is not irrelevant. Payment for
information or advice is very good evidence that it is being relied upon
and that the informer or adviser knows that it is. Where there is no
consideration it will be necessary to exercise greater care in distinguishing
between … those [relationships] which are of a contractual character
and those which are not.5f 2
Furthermore, Lord Devlin continued, “Cases may arise in the
future in which a new and wider proposition, quite independent of
any notion of contract, will be needed”.53 Thus, throughout his judg-
ment in Hedley Byrne, Lord Devlin attempted to emphasize the
interconnection between tortious liability for negligent mis-statement
and contractual responsibility.
4 S Supra, f.nA6, 220.
49Supra, fn.3a, 932, 972.
49a (1873) L.R. 6 (HL.).
50 Supra, fm.49, 971, 972 (italics added).
51 [1908] 1 K.B. 28; Stevens, supra, f.n.10, 156, assumes from this further
support for the overlap of tort and contract in negligent mis-statement.
52 Supra, f.n3b, 529.
53 Ibid., 530, 531.
MWeir, supra, fn.46, 220, surely reads too much into Lord Devlin’s judgment
when he claims that “Thus all breaches of contract which might with reason-
able care have been avoided become torts overnight”. Cf. the more moderate
19751
NEGLIGENT MIS-STATEMENTS
A dictum of Lord Pearce from the same case also indirectly
supports the view that Hedley Byrne did not rule out a contractual
relationship as being a “special relationship”. In discussing the effect
of disclaimers as to responsibility for mis-statements, his Lordship
declared that he did not “accept that even if the parties were already
in contractual or other special relationship the words would give no
immunity as to a negligent answer”.55 It is interesting to note also
that several of their Lordships in Hedley Byrne 6 referred to and
approved of the nineteenth century decision of Cann v. Willson,57 in
which the seeds of development of a tortious action for negligent
mis-statement were seen to have been sown, only to be shortly
thereafter eradicated by the Court of Appeal in Le Lievre v. Gould.58
In the Cann case there was a contractual relationship but Chitty J.
stated, “I have entirely passed by the question of contract. It is
unnecessary to decide that point”, and expressed a preference for
finding the defendant valuer liable in “negligence”. 59
In the light of the above dicta from Hedley Byrne, it is submitted
that there is plentiful evidence to suggest that if there is a mis-
statement by Barwick C.J. in the Australian High Court in Evatt’s case, (1968)
42 A.L.I.R. 316, 319: “It [i.e., the duty of care in negligence] does not really
though a contractual relationship may create the
derive from contract
relevant proximity.” This latter view coincides closely with that of Schroe-
der l.A. in Nunes Diamonds and, outside the mis-statement field, that of Lord
Wheatley in the Scottish professional negligence case of Robertson v. Banni-
gan, supra, f.n.3, 70:
The contractual relationship between parties and its nature (or the
absence of a contractual relationship) may be factors in deciding this
issue of legal neighbourliness [under Donoghue v. Stevenson], but the
existence of such a contractual relationship cannot, in my opinion, ipso
facto constitute a legal bar to an action of delict when one of the parties
is claiming damages on the ground of the negligence of the other arising
out of the circumstances created by their contractual relationship. The
conditions of the contractual relationship may govern and regulate the
nature and extent of the duties of the parties ….
55 Supra, f.n.3b, 540 (italics added). Stevens, supra, f.n.10, 156, assumes from
this dictum that “Lord Pearce implied that a contractual relationship was
that Hedley Byrne
per se a special relationship”, concluding (at 143)
relationships “will presumably embrace an increasing number of contractual
and precontractual relationships”.
56 See esp. the judgment of Lord Morris: ibid., 497, 498.
57 (1888) 39 Ch.D. 39.
58 [1893] 1 Q.B. 491.
59 Supra, f.n.57, 44. Note also that in Woods v. Martins Bank [1958] 3 All
E.R. 167, Salmon 3. found that although the plaintiff was not a customer at
the time the first mis-statement was made, he was a customer at the later
date when the negligent advice from the bank was implicitly repeated; yet the
bank was still found liable in negligence.
McGILL LAW JOURNAL
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statement on a matter intrinsically related to the subject matter of
the particular contract, such a contractual nexus can at least rein-
force the requisite “assumption of responsibility”.0 Also, even where
a mis-statement is made on a matter outside the subject-matter of
the contract, the contractual nexus is still of importance in establish-
ing the “special relationship” since, broadly speaking, this relation-
ship is of a “contractual character”.
Thus Barwick C.J. in the Evatt case talked about obligations
outside the “relevant” contract.”‘ In the same case before the Privy
Council, Lords Reid and Morris in their joint dissenting judgment
thought that it appeared to be common for businesses to perform
gratuitous services for customers, 2 presumably to acquire and retain
goodwill, and that such services could be outside the strict ambits
of the contractual subject matter. Such was the case in Reid v.
Traders General Insurance”2a where the main contractual relation-
ship was in connection with the sale of the car, and not with the
incidental insurance application in which the mis-statement occurred.
Similarly in Evatt the contractual relationship was of insurer
and insured, though the defendant’s advice related specifically to
investment prospects in a subsidiary company. Thus, one of the
plaintiff’s allegations to prove a duty was owed to him was that he
was a policy-holder in the defendant company. Lord Diplock in
his majority judgment in Evatt did not totally ignore this con-
tractual nexus, but stressed that such additional allegations were
“insufficient to fill the fatal gap in the declaration that it contains
no averment that the company to the knowledge of [the plaintiff]
carried on the business of giving advice upon investments…. 6
60 See Stevens, supra, fmn.10, 143.
61 Supra, frn.54, 318:
The first question is whether an action will lie at common law for neglig-
ence in the giving of information or advice where there is no relevant
contractual right or obligation between the parties nor any consideration
given….
02 Supra, fmn.39, 162.
62a Supra, f~nu34.
6 Supra, fro.39, 160. Investment advice is also a service which banks provide,
though whether this is a true banking service can be disputed; see Banbury
v. Bank of Montreal [1918] A.C. 626, as distinguished in Woods v. Martins Bank
Ltd., supra, f.n.59, 172. Of course, if the service provided is outside the purview
of the contractual subject-matter, it may well now fall foul of Lord Diplock’s
limitation in Evatt’s case that the advisers are not carrying on the profession
of giving advice of the kind sought. It is interesting that Lawson J. in Esso
Petroleum v. Mardon, supra, f.n.7, considers the majority view of the Privy
Council in Evatt to be unduly restrictive of the ambit of the duty for mis-
statement and prefers the minority reasoning of Lords Reid and Morris in that
1975]
NEGLIGENT MIS-STATEMENTS
At the very least, even this more limited form of contractual re-
lationship6
implies a “face-to-face” transaction between the parties
and the identity of the recipient of the information or advice being
known; i.e., what Lord Morris called a “direct dealing” in Hedley
Byrne. 5 As Barwick C.S. said in Evatt’s case,
He [the respondent] must give the information to some identified or
identifiable person…. It is this seemingly “bilateral” aspect of the neces-
sary relationship which, it seems to me, inclines the mind to the use of the
expression “assumption of responsibility” to describe the source of the
duty of care and to the employment of concepts of consensus and con-
tract, in the explanation of the emergence of the duty of care in utterance.66
This apart, the fact that the mis-statement actually relates to the
subject matter of the relevant contract will usually indicate the
following matters, which cumulatively (as far as can be distilled from
existing case law) have an important bearing on the “special relation-
ship”:
1. full knowledge on the part of the defendant about the purpose
for which the advice or information is sought and the particular
use to which it is to be put;
the enhanced foreseeability of the reliance and reasonableness
of such reliance by the plaintiff, especially where the defendant
holds a position of advantage over the plaintiff; in which case, as
Schroeder S.A. said in Nunes Diamonds, “it is easier to infer an
assumption of liability for negligent misadvice or misinform-
ation”;7
2.
3. an intention by the defendant to enter into legal relations with
the plaintiff, so ruling out an informal mis-statement or one
made on a social occasion;
case. See the statement of McKay i. in the Sealand case, supra, fn.14, 633,
where he rejects counsel for the defendant’s argument that Evatt’s case
showed there was no duty on the instant facts: “Ocean Cement, as part of its
regular business, gives advice to prospective customers on the characteristics
of its products and on the use to which they can be put, and from the giving
of such advice much of its business flows.”
4 It comes within the ambit of a relationship which “was brought into
being by the contract” as described by SchroederS.A. in Nunes Diamonds,
supra, fmn.14a, 37.
5 Supra, fm.3b, 497; see Stoljar, Mistake and Misrepresentation (1968), 131.
66 Supra, f.n.54, 321.
67Supra, fm.14a, 37. See recently Dillingham Construction v. Downs, supra,
f.n.5a, 57-59. As far as pre-contractual mis-statements are concerned, the factors
(such as the defendant’s superior knowledge and position of advantage) which
are relevant to decide whether in contract a representation is a term of the
contract may also be relevant to decide whether, in tort, there exists a duty
of care. See infra, f.n.93 and f.n.94.
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4. direct financial interest by the adviser in the transaction on which
he gives his advice, 8 although recent Australian cases have played
down this factor. 9
It
is submitted, therefore, that the dissenting judgment of
Spence J. in Nunes Diamonds accords with the spirit of Hedley Byrne
and logical legal principle, and that the contractual relationship may
in and of itself be an important factor in evidencing the tortious
duty.7 0 As he stated,
… under the circumstances which existed in the present case, that is,
that the respondent was supplying to the appellant a very important
service under a written contract and the enquiry was whether such
service was and could be efficiently performed… the decision in Nocton
v. Lord Ashburton is enough to justify a decision in favour of the
appellant. 1
He agreed with Addy J. at first instance who felt that,
… in the present case, … due to the existence of the contract and also
the special knowledge which D.E.P. [the defendants] had, covering the
subject-matter of burglar protection systems, a special relation existed
between the plaintiff and the defendant.7V 2
At the end of his dissenting judgment, Spence J. added that
[t]he agreement between the parties is of importance in so far as it
established a relationship between them and thus provided a basis upon
which, in the light of subsequent events, the appellant could rightly
assess that the negligent misrepresentations of the respondent were made
in breach of a duty of care to the appellant73
By contrast, Pigeon J.’s majority opinion stressed the contractual
relationship to opposite effect, denying any other relationship. He
stated:
08 See Anderson v. Rhodes [1967] 2 All E.R. 850; cited in Evatt, supra, f.n.39,
161.
71 Supra, fmn.13, 720.
72 Supra, fm.14b, 689.
73 Supra, fmn.13, 723.
69 Ellul v. Oakes, supra, f.n.4a, 392 (” …
the mere fact that he [the defendant]
had a financial interest in the transaction in which the statement was made
was not sufficient to convert it into the sort of advice” which leads to a
tortious claim: per Zelling J.); see also Dillingham Constructions v. Downs,
supra, f.n.5a, 59 (“direct substantial financial interest” of the defendants in
contract unsuccessfully alleged by the plaintiffs). Cf. Greig, supra, f.n.26, 200.
together with the seller’s
(“The existence of a contractual relationship
obvious financial interest in the conclusion of the bargain would seem to be
grounds upon which to found a duty of care.”)
70 Though as Addy J. pointed out at first instance in Nunes Diamonds,
supra, f~n.14b, 690, there was not here “as in the case of a solicitor or of a
doctor who is being paid for his advice, a specific duty to advise. There is,
of course, if advice is requested and advice is in fact given or if advice is given
without being requested, a duty to advise properly…”.
1975]
NEGLIGENT MIS-STATEMENTS
D.E.P. [the respondent] did not act in any fiduciary or advisory capacity
towards Nunes. Its situation was that of a party contracting to supply
specified services. The insurance brokers were those who were giving
advice to Nunes. By giving them information, D.E.P. did not cease to
be a contractor and become an advisor to the appellant on the matter
of burglary protection.74
Thus for him, tortious liability could not even arise indirectly.75
Pigeon J.’s one concession to his rule against the overlap of contract
and tort in negligent mis-statement was where “the negligence relied
on can properly be considered as an ‘independent tort’ unconnected
with the performance of that contract”.76 It is worthwhile to examine
what this “independence” test amounts to and what authority there
is for it.
The “Independent Tort” Test
Just as Pigeon J. in Nunes Diamonds cited Elder, Dempster, a
case quite unconnected with negligent mis-statement, as authority
for his “independent tort” test, so also Ilsley J. in the previous Cana-
dian case of Reid cited for his test the even more unconnected first
instance English case of Jackson v. Mayfair Window Cleaning Co.””
Thus the whole matter was thrown back to the fundamental and
broad issue of the difference between contractual and tortious
liability. The Jackson case in fact epitomizes the overlap problem
and recites yet again the question-begging judicial distinctions
74 Ibid., 727.
75 Schroeder JA. took a similar view in the court below; as he said,
supra, f.n.14a, 37, 38:
Viewing the plaintiff’s cause of action as flowing not directly from the
contract itself and built upon the relationship which it created between
the parties, I feel difficulty in appreciating the force of the plaintiff’s
contention that liability has been established under the Hedley Byrne rule.
He held that, excluding the alleged mis-statement of the defendant’s “tech-
nician”, the evidence established that the defendants had followed the “first
course” mentioned by Lord Reid in Hedley Byrne, viz., keeping silent or
declining to give the information or advice sought vis-&-vis the sending to the
plaintiff of copies of the letters written to the insurance brokers. Cf. the
judgment of MahoneyJ. in the recent Canadian case of Walter Cabott Con-
structions Ltd. v. The Queen, supra, fmnA6a, 97, where it was held that the
relationship between a defendant inviting tenders for a building contract and
a plaintiff building contractor contemplating the submission of a tender is
such that the defendant owes a duty of care not to withhold material
information, and that in the circumstances such a withholding amounted to
an actionable tortious mis-statement.
76 Supra, fmn.13, 727, 728.
7 Supra, f.n.37.
McGILL LAW JOURNAL
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between the two types of civil action. It was there held that the
defendants, who had contracted to clean the plaintiff’s chandelier,
should be sued in tort when the article was damaged because the
cause of action was not a nonfeasance or failure to clean the
chandelier, but arose out of an obligation to keep the chandelier safe
and not damage the property. The case illustrates an illogical strait-
jacketing of the law into procrustean contract or tort categories,
as is also to be found in some of the professional negligence
cases. This particular straitjacket, though, was of statutory creation
through the County Courts Act, 1934, which forced the courts to
make a rigid choice between contract or tort for the purpose of
costs. This ipso lure precluded the finding of any overlap.7 Faced
with such a problem, the courts could but constantly repeat the vague
tests of differentiation, as in Jackson itself, where the well-known
test of Greer L.J. in Jarvis v. Moy, Davies, Smith, Vandervell & Co.,
a professional negligence case concerning a stockbroker, was applied:
The distinction in the modem view, for this purpose between contract
and tort may be put thus: where the breach of duty alleged arises out of
a liability independently of the personal obligation undertaken by con-
tract, it is tort, and it may be tort even though there may happen to be a
contract between the parties, if the duty in fact arises independently of
that contract.Y9
Such a test, of course, begs the vital question of what “inde-
pendently” means, and when the courts have been forced to be more
specific, as in Nunes Diamonds, several meanings appear to have
emerged.
Firstly, in the old “common calling” cases, tortious liability
seemingly arose concurrently with a contractual undertaking be-
cause, by operation of law, occupations based on “status” were
considered to give rise to liability in tort because of the “public
calling” 0 quality of the occupation.
78 See Winfield, The Province of the Law of Tort (1931), 64:
… the County Court Acts have thrust upon us the distinction between
actions “founded upon tort” and actions “founded upon contract”. This
Parliamentary effort of jurisprudence, whatever its practical value, has
been a scientific failure.., it deliberately ignores our legal history and …
it has tied the hands of the judges ….
See also Guest, Tort or Contract? (1961) 3 Malaya L.R. 191, 202 et seq.
79 Supra, f.n.3, 405.
8oThe phrase used by Slessor L. in Jarvis v. Moy, Davies, Smith, Vander-
vell & Co., ibid., 407. See also the Canadian case of Terrace Board of School
Trustees v. Beswick (1963) 38 D.L.R. (2d) 498 (cited in Reid’s case, supra, f.n.34)
concerning the tortious liability of an architect. It was there stated that where
a professional man is sued in his capacity as such for breach of contract or
1975]
NEGLIGENT MIS-STATEMENTS
Secondly, in the Jackson case, the court seemed prepared to find
liability independent of contract where a misfeasance rather than
an omission caused physical damage to the plaintiff or his property
despite the relationship being contractual. Here the principles of
Donoghue v. Stevenson can more easily be applied.81
Thirdly, in the Reid case, the judge tested the concurrence of
actions by the “fictitious gift” approach, asking whether, if there
had been no consideration in the transaction and the car had been
given to the plaintiff, there would still have been assumption of
responsibility for the inaccurate information actually inserted into
the insurance application by the defendant salesman.8 2 This test, of
course, makes the whole event artificial and ignores commercial
realities; the business deal over the car sale was surely of vital
relevance to such an assumption of responsibility (as was in fact
found).
Fourthly, in Nunes Diamonds, Pigeon J. appears to have postu-
lated a “pseudo-causation” test of tortious independence in con-
cluding that “the representations relied on by the appellant cannot
be considered as acts independent of the contractual relationship
between the parties”.1 He asks, “Would these representations have
been made if the parties had not been in the contractual relationship
negligence and it is necessary to prove the terms of the contract to establish
the claim, the action must be taken to sound in contract, and moreover, that
it is doubtful that any duties are attached to an architect by the general
law so as to support an action in tort. Most recently in New Zealand the
same view has been taken of an architect’s duty to his client after ritual
citation of the Bagot, Jarvis and Clark cases: Bevan v. Blackhall and Struthers
(No. 2) [1973] 2 N.Z.L.R. 45, 82 (N.Z.Sup.Cit): “The relationship was con-
tractual, the duty was contractual and… any cause of action must be in
contract”: per Beattie J.
81 See Greig, supra, fm.n26, 195:
In the case of professional men a distinction was drawn between those
like medical, dental or veterinary practitioners, negligence by whom was
likely to give rise to physical damage to the plaintiff or his property, and
others. However, it is clear that most of the cases that could be cited
in support of the distinction were dependent upon the principle that
no remedy was available in tort for innocent misrepresentation and for
financial loss, and so were no longer reliable authority after Hedley
Byrne.
Lawson J. in the Esso Petroleum case, supra, f.n.7, felt that to deny a tortious
duty of care in a contractual mis-statement situation would be harking back
to the law as it was before Hedley Byrne when a real distinction was made
between negligence with regard to statement and negligence in other situations.
S 2Supra, fn34.
S8 Supra, f.n.13, 728.
McGILL LAW JOURNAL
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in which they stood?”., He answers in the negative and concludes
that “the question of liability arising out of those representations
should not be approached as if the parties had been strangers, but
on the basis of the contract between them”.8 5 If this is a “let’s
pretend they’re strangers” test which simply asks, “Would there have
been any representation at all but for the contract?” it is, with
respect, unrealistic and artificial like the test in Reid, as well as being
novel. But this certainly appears to be McKay J.’s understanding of
the test in the later Sealand case, where counsel for the plaintiff tried
to argue that the Hedley Byrne principle could apply to McHaffie
personally for his allegedly negligent opinion that zenolite concrete
was to be preferred to styrofoam. Applying Pigeon J.’s test,”” McKay J.
concluded:
That opinion by McHaffie would not have been expressed but for the
contract between Sealand and Robert C. McHaffie Ltd. [the company]
and cannot be considered as independent of the contractual relationship.8 7
However, Pigeon J.’s dictum goes on to express concern whether
the later mis-statements were intended to vary the pre-existing con-
tractual terms, which he views as not putting the defendants in the
position of “insurers”.88 It may therefore be possible to interpret his
test as constituting yet a fifth test of “independence”, namely, “Would
the defendant and their agent have made such assurances if they did
not already consider themselves immune from liability under the
terms of the contract?” (i.e., not simply because of the existence of a
contract). This sort of “sense of security” causation test to determine
whether the mis-statements would have been made at all without
the imagined protection of the contract is again novel, but at least
it does tie in with the solution suggested infra to the Nunes
Diamonds and Sealand problem, particularly concerning pre-con-
tractual and post-contractual mis-statements.
84 Ibid.
85 Ibid.
86 Supra, fLn.14, 634 (“Pigeon I. in the Nunes Diamonds case … formulated
a test to assist in determining whether the act ‘complained of is independent
of the contractual relationship”).
87 Ibid., 635.
88 Supra, fn.13, 728:
Hence the question should be: May this contract of service be considered
as having been turned into the equivalent of a contract of insurance, by
virtue of inaccurate or incomplete representations respecting the actual
value of the protection service supplied? In my view, there is no doubt
that this question should be answered in the negative. There is nothing
from which it can properly be inferred that Nunes considered that the
contract had been so altered and it is perfectly obvious that D.E.P.’s
management never intended to assume such obligations.
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A Suggested Solution to the Nunes Diamonds Problem
As already seen, the most extreme interpretation of Nunes Dia-
monds in the Canadian Supreme Court is that if a mis-statement is
made at or after the creation of a contract (Nunes Diamonds comes
into the latter category), 89 then Hedley Byrne prima facie has no
application and any liability must normally be contractual. Such a
principle was twisted in Sealand to rebound to the plaintiff’s ad-
vantage in the case of the pre-contractual representation by Robin-
son, with whose employers a contract later materialized,90 although,
rather anomalously, the employers’ liability for Robinson was found
to have both contractual and tortious overtones. McKay J. stated:
In addition to its liability in tort, I am of the view that Ocean Cement is
liable in contract [under s.20a of the British Columbia Sale of Goods Act,
1960]. … In the case at bar there is not only the implied condition [under
the Sale of Goods Act] … but there is the express warranty by Robinson
that the product was reasonably fit for the purpose.91
Thus, McKay J. does consider that the pre-contractual misrepresen-
ation had an effect on the contractual warranty, and yet still found
Robinson’s employers liable in tort for the misrepresentation.
As regards pre-contractual misrepresentations, there is much
force in the argument of Glasbeek that,
… when the relationship between the parties is one of negotiations
towards a binding agreement, it is fair to postulate that neither of the
89 The contract there was very much of a continuing nature, the considera-
tion per annum being payable in monthly instalments; thus Schroeder J.A. in
the Ontario Court of Appeal uses the phrase “continuing contractual duty”:
supra, f.n.14a, 32; later in his judgment (at 38), he again seems to doubt
whether the defendant’s alleged mis-statements were truly post-contractual
when he discusses the problem of representations not made “prior to or
simultaneously with the entry into the contract, but after the completion of
the formalities and during its currency”.
90 Cf. Stevens, supra, fmn.10, 156, who states that “the most misleading aspect
of Lord Hodson’s remark [in Hedley Byrne in respect of innocent misrepre-
sentations] … is the implication (if it be so) that Hedley Byrne does not
apply to those who ultimately enter into a contract”.
91Supra, frn.14, 634. In Nunes Diamonds, Addy J. stressed at first instance
that “there was no suggestion that there was any failure to comply with the
supplying of the equipment or any evidence that the equipment supplied was
defective in se…”, and he found that the equipment was in fact reasonably
suited to do the job; nor could there be liability in tort for selling an in-
herently dangerous product because, in his opinion, nothing in the security
system caused the damage, which was “entirely the action of the thieves”:
see supra, f.n.14b, 687, 692.
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parties is willing to assume responsibility for anything he does not in
fact specifically endorse by inclusion in the contract.0 2
Although he surmises that Hedley Byrne might be “most useful” to
the representee where the defendant’s mis-statement has induced a
contract,93 but is not a term of it, he concludes that:
It will, however, be difficult to impute to the representor an assumption
of responsibility for the truth of his statement in a situation where that
statement could not also be validly considered to be in the nature of a
contractual warranty, and hence actionable under contract law.0 4
92 Supra, f.n.30, 131. In Dillingham Constructions v. Downs, supra, f.n.5a, 55,
Hardie J. in the Supreme Court of South Australia seemingly endorsed the view
of counsel for the defendants that persons in pre-contract negotiations are
entitled to, and usually do, seek to make the most advantageous deal they
can and are at liberty to have regard solely to their own interests.
93 There is some implication in Nunes Diamonds that there may be tortious
liability under Hedley Byrne for a misrepresentation which induces the con-
tract, viz., “It is not a case of misrepresentation leading to the making of a
contract”: supra, f.n.13, 727 per Pigeon J. Cf. Coote, infra, f.n.94, 276, 277:
“… it is very difficult to envisage any circumstances in which a person
could be said to have accepted responsibility in tort for a representation
inducing a contract where he could not be held also to have accepted
responsibility in contract”.
In England, since the 1967 Misrepresentation Act, there may be statutory
liability under s.2(1) where the defendant induces the plaintiff into contracting
with him; thus the Act “dispenses with the need to show a special relationship
and puts on the defendant the burden of disproving that he was fraudulent
or careless in saying what he did”: Weir, Casebook on Tort 2d ed. (1970), 46.
See also Stoljar, supra, f.n.65, 143, 144. In the recent case in England which
touches, albeit obiter, on this point, McInerny v. Lloyds Bank [1974] 1 Lloyds
Rep. 246, 253 (CA.), Lord Denning states,
… it seems to me that if one person, by negligent mis-statement, induces
another to enter into a contract – with himself or with a third person –
he may be liable in damages. This is quite independent of the Misrepre-
sentation Act, 1967, which deals only with misrepresentation made by a
party to the contract. [Italics added]
Also, at 253:
… when one man makes a statement to another with the intention of
inducing him into a contract, with him…, on the faith of it, the maker
must be regarded as accepting responsibility for the statement.
The reason why the Misrepresentation Act was not utilized by the counter-
claiming defendant in Esso Petroleum v. Mardon, supra, f.n.7, (the latest
English case) was apparently because the alleged misrepresentation was made
prior to 1967, and s.5 states that the Act is not retrospective.
94 Supra, f.n.30, 132. Is tort liability, therefore, coincident with the “term
of contract” rule? See Honor6, (1965) 8 J.S.P.T.L. 284, 296, 297:
… it does not seem that the impact of these relationships [i.e., tortious
relationships] on the liability of parties to a contract is likely to be
great. If in the circumstances it can be inferred that one party assumes
responsibility for the truth of a statement made to the other, the law
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NEGLIGENT MIS-STATEMENTS
However, despite Harman L.J.’s fears at the Court of Appeal
stage in Hedley Byrne that a mis-statement action in negligence would
have repercussions for contract and the hallowed rule that an
innocent misrepresentation should not lead to damages,95 the gener-
ally accepted academic view is to the effect that “it would not have
been unduly difficult to apply them [i.e., the tests in Hedley Byrne]
to a situation which arises between the parties preparatory to enter-
ing into a contract and so to have imposed liability in damages for
negligent misrepresentation”. 96 Sealand now provides clear authority
to this effect, at least where the mis-statement stands apart from the
later contract;9 7 but not, it appears, if it later becomes a term in the
of contract, independently of Hedley Byrne, imposes a liability sounding
in damages.
And Coote, The Effect of Hedley Byrne (1967) 2 N.Z.U.L.R. 263, 277:
The consequence
is that while Hedley Byrne might in limited cases
provide additional grounds for relief in respect of misrepresentations
which are already conditions or warranties, it is unlikely to provide
separate relief in damages for mere misrepresentations not forming part
of the contract.
For further restriction on the tortious inroad, see Coote, ibid., 269, where
he points out that if Hedley Byrne liability is “restricted to skilled or pro-
fessional persons, the Hedley Byrne principle cannot as was at one time
conjectured might be the case, create a general remedy in damages for
innocent misrepresentations including contracts”. But cf. the recently expressed
view of Lawson J. in Esso Petroleum v. Mardon, supra, fn.7. Furthermore, in
Ellul v. Oakes, supra, fn.4a, 379, it was emphasized that in a negligent mis-
representation claim in tort, “damage is the gist of the action”, and in this case
the plaintiff could prove none though he could still succeed in the alter-
native claim for breach of warranty that the house was sewered, and was
then entitled to damages in contract for the cost of sewering the house.
See also f.n.106 and f.n.128, infra, for further differences between the basis of
liability in contract and tort for pre-contractual mis-statements.
95 [1961] 3 All E.R. 891, 902, 903.
06 Anson on Contract 23d ed. (1969), 223. See also Weir, supra, f.nA6, 220,
who maintains that the next relationship to contract itself to qualify as
equivalent to contract “must surely be that of the parties in the process
of contracting. If so, then there must be a tort action whenever in the
preliminaries one party either generally by unreasonable behaviour or speci-
fically… causes loss to the other…”.
97 Supra, fn.14, 633 (McKay J.):
Counsel for Ocean Cement took the position that the liability of Ocean
Cement, if any, was based in contract and that the Hedley Byrne prin-
ciple did not apply where the relationship of the parties is governed by
a contract… . The short answer is that the representation by Robinson
was made months before any contractual arrangement was entered into.
Most recently in Walter Cabott Constructions Ltd. v. The Queen, supra, f.n.46a,
98, Mahoney J. held that he had:
… no difficulty in finding that the relationship between the person who
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contract. Recent cases in Australia also suggest that, in appropriate
circumstances, Hedley Byrne can apply to pre-contractual situa-
tionsf 8
Two Australian cases, in particular, are important: Dillingham
Constructions v. Downs 99 and Ellul v. Oakes.100 In the Dillingham
case, the plaintiffs, two companies, entered into a contract with the
defendants, the New South Wales Government, for the deepening
of Newcastle harbour. The plaintiff’s work did not reach the planned
rate of progress because disused coal workings under the harbour,
which the defendants had known about all along, made blasting at
first relatively ineffective. The plaintiffs sued for the loss resulting
from the performance of the contract, alleging, inter alia, negligent
misrepresentation. On this count, Hardie 1. in the New South Wales
Supreme Court seems to have endorsed the defendants’ assertion
that the
… pre-contract relationship would not normally qualify as a special
relationship of the type which would subject one or other of the parties
to a duty of care in the assembly or presentation of facts, figures or other
information, as to the subject matter of the contract, … [and the policy
of the common law is to uphold contracts freely made] … because a
person in pre-contract negotiation is entitled to and usually does seek to
make the most advantageous deal he can … [and] have regard solely to
his own interests. 0′
Hardie J. found that upon a consideration of all relevant factors,
there was no assumption of responsibility by the defendants nor
reliance by the plaintiffs. However, in response to the plaintiffs’
submission””2 that the fact of the parties negotiating a contract and
the pending contractual relationship “constituted a strong nexus to
bring the parties to that relationship of proximity which creates a
duty of care”, he opined that a duty of care of the type relied on by
invites tenders on a building contract and those who accept that invita-
tion is such a particular relationship as to impose a duty of care upon
that person so as to render actionable an innocent but negligent misre-
presentation in the information which he conveys to those whom he
intends to act upon it.
98E.g., Presser v. Caldwell Estates Party Ltd. [1971] 2 N.S.W.R. 471, 486,
493 (negotiations for sale of real estate); Morrison-Knudsen v. Commonwealth
(1972) 46 A.L.J.R. 265.
99 Supra, f.n.5a, Lawson J. in Esso Petroleum v. Mardon, supra, f.n.7, relied
strongly on the Dillingham case to show that Hedley Byrne could apply to a
pre-contractual relationship, because there was no direct English authority
in this area.
1Oo Supra, f.n.4a.
101 Supra, fn.5a, 55.
102 1Pid., 59.
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NEGLIGENT MIS-STATEMENTS
the plaintiffs depended on the language of the contract, the position,
conduct, knowledge and intention of each of the parties and the
communications passing between them. 13
In the second case, Ellul v. Oakes, which went to the Supreme
Court of South Australia, the defendant instructed an agent to sell
his house and filled in particulars of the house on a form supplied
by the agent. In answer to a question as to whether the house was
sewered, or was served by a septic tank, indicated by the words
“septic/sewer”, the defendant crossed out the word “septic” and
wrote “yes” alongside the word “sewer”. The house was in fact not
sewered. The plaintiff purchasers signed an agreement, subject to
the vendor’s approval, to buy the house. The agreement was never
executed by the vendor, but a memorandum of transfer of the house
to the plaintiffs was executed. Upon discovering some months after
the sale that the house was not sewered, the plaintiffs sued the
vendor for damages for breach of warranty, or alternatively for
negligent misrepresentation.
The warranty claim in contract was successful, the mis-statement
being found to be part of the contract, and the plaintiffs were held
entitled to an award of damages for the cost of sewering the house.
The claim in tort for negligence, however, failed because the plaintiffs
had not on the facts proved damage, i.e., that the house unsewered
was worth less than the price paid for it. But, obiter, all the members
of the Supreme Court agreed that even if damage had been proved,
an action based on Hedley Byrne would probably not have suc-
ceeded. As Zelling J. stated:
… I think the defendant in this case was not a person holding himself
out as possessing a special skill or ability; he was not a person appealed
to for advice and giving it; and the mere fact that he had a financial
interest in the transaction in which the statement was made was not
sufficient to convert it into the sort of advice which attracts the inter-
vention of the Court in cases of negligent misrepresentation.104
Bray C.J., however, was more restrictive in his approach. He stated:
I do not doubt that such a claim may succeed in some circumstances not-
withstanding that the misrepresentation is connected with a contract
between the parties, but the law of vendor and purchaser is so familiar
and well-developed, and so many claims for damages in respect of innocent
misrepresentations in relation to the sale of land, often disguised as
claims for breach of warranty, have failed, that it might be difficult now
to apply the new [Hedley Byrne] principle to such claims’ o 5
103 Ibid., 56, 59.
o Supra, f.n.lO0, 392.
‘Or Ibid., 380,
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the gist of the “special relationship” –
It is submitted that the true principle in respect of a pre-con-
tractual negligent mis-statement is that assumption of responsibility
and reasonable reliance –
may not be ruled out merely because both parties contemplate a later
contract as regulating their relationship.106 As Professor Millner
points out, the volunteering of information as well as the exchange
of question and answer in renegotiation of a contract “are normally
seriously intended, pertinent to the conclusion of a specific contract,
and understood by both parties to be so”..0 It may well be that the
later contractual terms should have to contain exempting or res-
trictive conditions in terms wide enough to comprehend tortious
liability (see White v. Warwick, infra) in order to rule out any
incipient tortious liability, particularly since the test of exemption
for negligence involves comprehensibility to the “ordinarily literate
and sensible” plaintiff. 08
Thus, as regards pre-contractual mis-statements, it may even be
argued that if no disclaimer of responsibility was made at that prior
point of time, any later restriction or exclusion of liability, even if
ostensibly affecting tortious liability, may be too late to be effec-
106As Glasbeek, supra, f.n.30, 132, concedes, “it is probably less artificial to
imply that a reasonable man in the defendant’s position assumed a duty of
care, than to have the courts insert a term which the parties quite possibly
ignored in their quid pro quo arrangements”. One obvious situation where
contractual rule analogies could not be taken in tort is where the prior mis-
statement relates to a matter of opinion, and not fact. Here the firm contractual
rule is that “[a] mere statement of opinion, which proves to have been un-
founded, will not be treated as a misrepresentation…”: see Chitty on Con-
tracts 23d ed. (1968), 125. But the Hedley Byrne principle has applied to both
negligent statements of fact and opinion: that is, to information and advice.
Hence it has been pointed out that “in an action in tort it is not necessary
to show that the statement complained of was a representation in the sense
which this term bears in the law of contract”: Chitty, ibid., 126.
107 Negligence in Modern Law (1967), 40. Now, in England, LawsonJ. has
decided (Esso Petroleum v. Mardon, supra, fn.7) that a duty of care which
arises from the plaintiff’s special relationship with the defendant is not
excluded or qualified by the fact that, as a result of the statement, they
are brought into a contractual relationship, and that such a view of the
law would not open the door wide and erode the principle of caveat emptor.
In this case the plaintiff, Esso Petroleum, carelessly made a statement to
the defendant about the through-put potential of a new petrol filling station
which resulted in the defendant taking a tenancy from Esso. It was held
that, in the circumstances, a special relationship existed between the parties
which put Esso under a duty to the defendant. Thus the defendant’s counter-
claim against Esso succeeded. See also the recent Canadian case of Walter
Cabott Constructions Ltd. v. The Queen, supra, f.nA6a.
10 8Hollier v. Rambler Motors, supra, f.n.24, 404 per Salmond L..
19751
NEGLIGENT MIS-STATEMENTS
tive,10
though Coote thinks it is “arguable that even if the person
replying does initially assume responsibility and thereby attracts a
duty, he may thereafter take advantage of the ordinary rules relating
to exemption clauses, as they are commonly understood”.”
In
respect of Robinson’s pre-contractual mis-statement in Sealand, the
complication of such exemption clauses in the subsequent contract
was lacking. This idea of self-contained tort liability was emphasized
by Barwick C.J. of the High Court of Australia in the Evatt case,
where he stressed that the duty of care for mis-statement is imposed
by the “law” and “not by consensus”. Indeed, he went so far as to say
that “because it is so imposed, I doubt whether the speaker may
always except himself from the performance of the duty by some
express reservation at the time of utterance”.”‘ It was subsequently
decided in Australia, in Morrison-Knudsen International v. The Com-
monwealth,”2 that where certain documents containing special and
general conditions were communicated by the defendants to the
plaintiff before the latter registered as tenderer for certain works
in the construction of an airfield, these documents (which did not
form part of the subsequent contract) were not necessarily fatal
to the plaintiff contractor’s case. As Menzies J. opined in the High
Court, the alleged pre-contractual conditions were not contained in
a contract denying the plaintiff any rights relating to the information,
nor did they amount to a disclaimer, as in Hedley Byrne v. Heller.1″ 3
The same argument on the applicability of Hedley Byrne to pre-
contractual mis-statements can also be applied, by analogy, to post-
109 See Lord Devlin in Hedley Byrne, supra, fmn.3b, 613. See also Stevens,
supra, f.n.10, 155. Greig maintains, in the context of sale of goods, that “[ilt
is probably true that a disclaimer … need not be given at the time of
the statement, but it would have to be given before it is acted upon”,
and “tihe
inclusion of a disclaimer in the contract is almost certainly
too late, because the representation has already had the desired effect, i.e.,
induced the buyer to enter into the contract”: Misrepresentations and Sales
of Goods, supra, f.n.26, 201, 202.
110 Supra, f.n.94, 274. See also Winfield and Jolowicz, Tort 9th ed. (1971), 237.
M Supra, f.n.54, 321. In England, the Misrepresentation Act, 1967, s.3 states
that an exemption clause as to misrepresentations made by the defendant
before the contract was made shall be “of no effect except to the extent (if
any) that, in any proceedings arising out of the contract, the court or arbi-
trator may allow reliance on it as being fair and reasonable in the circum-
stance of the case”. Could this statutory provision be applied, by analogy,
to a tortious misrepresentation where no reliance is placed on the Act? See
James, Innocent Misrepresentation: An Unanswered Challenge (1963) J.B.L.
207, 217.
” 2 Supra, f.n.98.
113 See also ibid., 270 per Gibbs J. (whether there was a disclaimer “must
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contractual mis-statements such as those in Numes Diamonds or in
Sealand. If the parties have already entered into a contractual
relationship, the fact that a mis-statement has been made against
such a background may enhance the likelihood of a “special relation-
ship” being found to exist between them. However, it may still be
argued by the defendant that, as the mis-statement is not contained
in the contract itself as a term or made contemporaneously with it,
he assumed no responsibility for it. This to some extent ties in with
the second possible interpretation of Pigeon J.’s “independence” test,
discussed supra. Once again, the negligent post-contractual mis-
statement may be tempered by the existing restrictive terms of the
contract which may manifest beyond doubt that there was no true
assumption of responsibility in tort by the defendant and no
possibility of reasonable reliance” 4 by the plaintiff under Hedley
Byrne. A situation similar to that of “non-contractual disclaimer”, as
in Hedley Byrne itself, may then be found to exist.
It is evident from Pigeon J.’s judgment in Nunes Diamonds that
he was very worried about what he considered to be a later variation
of contract through the agency of tort. As he said, “It is a case in
which, the parties having mutually established their respective rights
and obligations by contract, it is sought to impose upon one of them
a much greater obligation than that fixed by the contract…-.15
The same worry is reflected in Schroeder J.A.’s judgment in the court
below when he says:
To apply it [i.e., the Hedley Byrne principle] here would be to make an
unwarranted extension of it quite apart from the fact that the relations
between the parties are governed by a formal contract which embodies all
the essential terms upon which they have agreed.”16
The reason for such over-emphasis on the contractual terms in
Nunes Diamonds was undoubtedly due in large measure to the
“practical exclusion of responsibility””” in the contract itself and
the unjustifiable conclusion in the Supreme Court by the majority
that this had inevitable repercussions on tortious liability. In the
case, the contract stated in clause 16 that “No conditions, warranties
or representations have been made by Dominion Company, its
be considered in the light of all the circumstances”).
“4 There is the interesting implication at the end of Pigeon J.’s judgment
in Nunes Diamonds that the fact the plaintiff was insured in respect of the
risk on which the defendant advised may have had some bearing on how
much actual reliance the plaintiff put on the misrepresentation: see supra,
f.n.13, 730.
15 Ibid., 727, 728 (“a fundamental alteration of the contract”).
“16 Supra, fn.28a, 38, 39 (italics added).
17Supra, f.n.13, 728.
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NEGLIGENT MIS-STATEMENTS
officers, servants or agents other than those endorsed hereon in
writing”. But as Spence J. pointed out in his dissenting judgment,
even if this limiting clause were applicable to tortious liability, which
was doubted by Addy J. at first instance, it had been framed in the
past tense and so was of no effect to post-contractual representations
made some 13 months after the date of contract.”” However, the
contract also stated that the defendant was “not an insurer” and
limited liability under the contract to “$50 as liquidated damages”.
Pigeon J. seems to have stressed the latter stipulations because of
the apparent inapplicability of the first “no conditions, warranties
or representations” provision; but it may be argued that such
stipulations might in any event have been ineffective as regards
tortious liability because the terminology as to what was ruled
out had a closer affinity to contract than tort, though possibly the
term “representations” could have had a direct bearing on tortious
liability on an analogy with a disclaimer clause.”9 Thus Spence J.
agreed with Addy J. at first instance that:
… the plaintiff has not… contracted itself out of its right to claim
damages against the defendant, if such damages can be founded on an
action in tort. A clause purporting to provide for exclusion of liability for
negligence will be strictly interpreted and, even though it might exempt
from liability based on a contractual duty, it will not exempt from liability
based on the breach of a general duty of care unless the words to that
effect are clear and unequivocal.20
Even Schroeder J.A. in the Ontario Supreme Court mentioned the
further consideration (with “intriguing implications” which he had
no need to go into) of whether “having regard to the qualifying
terms of the contract, it is open to the plaintiff to disregard them
and allege a wider liability in tort”.’ 21 It has already been held in
England in Coats Patons (Retail) v. Birmingham Corporation’2 2 that
an exemption clause in a contractual relationship to the effect that
replies were given by the defendants on the “distinct understanding”
that the defendants were not “legally responsible therefor” related
only to contractual liability and therefore did not exclude negligence.
The assertion in Nunes Diamonds that no “representations” had
been made could also be construed as reinforcing the exclusively
118 Ibid., 722. Cf. the defendant vendor’s exemption in Dodds v. Millman,
supra, f.n.22 (“It is understood and agreed that there are no other repre-
sentations, warranties, promises or agreements other than those contained
in this agreement”).
1i9 Spence J. uses the phrase “tortious misrepresentation”:
120See supra, fmn.13, 722, 723. See also Greig, supra, fn.26, 202.
2l1 Supra, fm28a, 38.
122 Supra, f.n.38, 360, 361.
ibid., 723.
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contractual rule against parol evidence. This point was made by
Addy J. at first instance:
… it is definite enough to remove any liability from a strictly contractual
standpoint which might flow from any misrepresentation previously
made but not actually expressed in writing on the contract. Nunes
Diamonds had contracted itself out of any right it might have had to
insist that the parol evidence rule not be invoked against it. 12
Because of the ostensible inapplicability of the first restrictive
clause, Pigeon J. laid greater stress on the “no insurers” stipulation
which the plaintiff had agreed to in the contract, saying:
It is an essential basis of the contract between the parties that D.E.P.
is not to be in the situation of an insurer. It is in consideration of this
stipulation that the charges are established “solely on the probable value
of the service”, not on the value of the goods intended to be protected. 2’1
Even this argument, however, is dubious in relation to tortious
liability because it presupposes that liability in tort for mis-statement
can be based on a guarantee of accuracy, rather than on taking such
care as the occasion demands. 125 The latter was the standard applied
by Spence J. in Nunes Diamonds in concluding that
… the modesty of the contract fee is not relevant to the issue of whether
the respondent should be held liable in damages, not for any breach of
contract, but for tortious misrepresentation the serious consequences of
which had been conveyed to it by Eyl Brothers [the plaintiff’s insurance
brokers].126
Of course, contractual liability may be measured by a higher duty
such as a guarantee of accuracy if the contract in question can be so
construed. 12 7 This was one reason why several commentators on
Hedley Byrne have played down the fears that the formula there laid
1
2 3 Supra f.n.70, 688. Cf. the defendant’s pre-contractual assertion in Mor-
rison-Knudsen v. The Commonwealth, supra, f.n.98, 269, that the document
did not form part of the contract documents. GibbsJ. thought that this
statement “no doubt showed that the information was not warranted, but this
was of no importance since the plaintiff’s claim is clearly not for a breach
of warranty”.
124 Supra, f.n.13, 728.
125 Cf. the dictum of Barwick CJ. in Evatt’s case, supra, f.n.54, 322 (“it
should be emphasized, the obligation of the speaker is no more than to use
reasonable care in the circumstances”).
126 Supra, f.n.13, 709.
127 It is interesting to note that, at the Court of Appeal stage of Hedley
Byrne, Pearson Li. adverted to counsel’s contention there that the disclaimer
words should be understood as only excluding a warranty of accuracy as
to the reference given and that accordingly they should not be understood
as excluding liability for negligence, for which purpose express and un-
ambiguous words could be necessary. But His Lordship did not find it
necessary to express any opinion on this point: [1962] 1 Q.B. 396, 414.
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NEGLIGENT MIS-STATEMENTS
down would make drastic inroads into the common law rule (now to
some extent overridden in England by the Misrepresentation Act,
1967) “-8 that a misrepresentation, if not a term of the contract, does
not give rise to an action in damages; 129 the case suggested
that only negligent misrepresentations would be affected by the
tortious inroad into contract. Thus, in Sealand, Robinson’s pre-
contractual representation was expressly found to have been negli-
gent.130 It can be argued, therefore, that though the “no insurers”
stipulation might have operated like a disclaimer in tort, it could
also have been found to have effect only with regard to the possible
higher duty on the defendants in contract. Even the stipulation that
“liquidated damages” of only $50 might be obtained was couched
in terms having greater affinity with contractual liability than with
tort.131
Conclusion
As cases like White v. Warwick, 32 Rutter v. Palmer,33 and
Alderslade v. Hendon Laundry’34 show, it is precisely in the essentially
contractual situation, where there are contractual limitations or
exclusions of liability, that the plaintiff will be most concerned to
allege and prove alternative liability in tort which, as Prosser has
said, is generally “likely to be more advantageous to the injured
party in the greater number of cases”” 3 and therefore may be a
“valuable procedural weapon”.’ 36 The Nunes Diamonds decision to a
large extent has taken this weapon from the plaintiff’s hands by an
undue concentration on the “independent tort” principle in the old
128 “The fact that such an Act was felt desirable stands as an indictment
of the timidity of the courts in failing to set precise limits upon a rule
which could cause injustice by classifying a statement about the subject
matter of the contract as an innocent misrepresentation and therefore falling
outside a remedy in damages”: Greig, supra, f.n.26, 206, 207. If the Misre-
presentation Act had been applicable in Esso Petroleum (supra, f.n.7), there
would have been no need for the judge to resort to common law principles.
(See supra, f.n.93, for the reason the Act did not apply).
129 E.g., Honor6, supra, f.n.94, 297.
10 Supra, f.n.13, 632.
131 Where unliquidated damages are typical.
132 [1953] 2 All E.R. 1021.
133 [1922] 2 K.B. 87.
’34 [1945] 1 K.B. 189.
1335 “The Borderland of Contract and Tort” from Selected Topics on the Law
of Torts (1953), 425. See the dictum of Zelling J. in Ellul v. Oakes, supra, f.n.4a,
390, on the right of the plaintiff to elect which course of action will benefit him.
136 Ibid., 401.
McGILL LAW JOURNAL
(Vol. 21
and unsatisfactory case of Elder, Dempster, and by a restrictive inter-
pretation of the recent and eminently satisfactory case of Hedley
Byrne,1′ 7 thus severely limiting the natural overlap between contract
and tort. Moreover, and most unfortunately, it manifests an illiberal
approach to the contra proferentem rule which the courts have been
progressively developing in the borderland of contract and tort to
work justice for the deserving plaintiff.
13
It is perhaps significant that the latest Canadian case in which Nunes
Diamonds has been cited, Porky Packers v. Town of Pas (1974) 46 D.L.R. (3d)
83 (Man. CA.), concerning mis-statements in a contractual relationship (a
sale of land), defendant counsel’s argument that the doctrine of Hedley Byrne
does not apply to a contractual relationship was rejected by Matas SA. as
being stated “too broadly”. The judge categorized the relationship in the
instant case as “quite different” from that in Nunes Diamonds because it was
“not governed by a contract” (at 94, italics added).
