Negligent Misstatement Case Study

Business Law

Question 1
Explain what has to proven in an action for negligent misstatement.

There are several types of false statement. One of them is a deliberate lie, which goes under the Tort of Deceit. Another one is negligent misstatement, which is basically the statement made carelessly or without reasonable background and is included into the Law of Tort.
The liability for negligent misstatement may arise from pure economic loss. According to Steele (2010), ‘Economic losses will be regarded as “pure” if they do not flow from any personal injury to the claimant nor from physical damage to his or her property’. The boundaries between “pure” economic loss and the loss which is “consequential” from damage were established by the Court

However, foresight test is not actual now as it was substituted with the ‘knowledge’ criteria after the Caparo Inductries plc V Dickman [1990] case. The house of Lords held that a very proximate relationship must exist between claimant and defendant before liability in negligent misstatement will arise. Still, however, in order to give rise to liability, the four conditions should be satisfied:

I. The advice is required for a purpose, which is made known to the adviser.
II. The adviser knows that the advice will be communicated to the advisee in order that it should be used by the advisee for that purpose
III. It is known that the advisee will be acting upon the advice for that purpose without independent inquiry
IV. It is so acted upon by the advisee to his detriment

The Hedley Byrne rule was in course of time developed through many cases. The two-stage test, which arose from Ann V Merton London Borough Council [1978] evolved into three stage test after the Caparo Inductries plc V Dickman [1990], and now include following

According to Lord Reid (at 482-4), “Quite careful people often express definite opinions on social or informal occasions even when they see that others are likely to be influenced by them; and they often do that without talking that care which they would take if asked for their opinion professionally or in a business connection”. This statement is basically about how easily the words are spread and thus, it s difficult to prove special relationships. Sometimes the court does not want to deal with pure economic losses because it is afraid of opening the floodgates, as lots of the cases are indefinite in relation to the foresight and size of the class. Lord Reid described it by saying: “Two words can be broadcast with or without the consent of the foresight of the speaker or writer. It would be one thing to say that the speaker owes a duty of care to the limited class, but it would be going very far to say that he owes a duty to every ultimate ‘consumer’ who acts on those words to his detriment…”(Steele,