knowledge | 28 June 2017 |
Negligent Misstatement: “duty of care unless” for Actions; “duty of care only if” for Statements
The Supreme Court recently reviewed the proper approach to liability for negligent misstatement, established in England and Ireland in the 1960s.1 The judgment is a reminder to all agents that they should take great care to avoid permitting or recognising any reliance on the agent’s statements by all potential counterparties dealing with their principals. The financial consequences of any inaccurate statement around the transaction should be the principal’s and not the agent’s risk.
In Walsh v Jones Lang Lasalle Ltd,2 the High Court3 awarded the plaintiff, a property investor, €350,000 damages for a negligent misstatement in particulars in a sales brochure produced by the defendant firm of estate agents. The defendants appealed on liability to the Supreme Court, which upheld the appeal by a 3-2 majority.
The plaintiff had visited the premises where he met a representative of the defendant (the vendor’s agent) who gave him a two-page brochure. The brochure included the agent’s contact details, a photograph of the premises and the following area details: “2,142 m2 (23,057 sq ft); Site Area 0.13 Hectares (0.31 Acres)”. It also included the following disclaimer: “Whilst every care has been taken in the preparation of these particulars, and they are believed to be correct, they are not warranted and intending purchasers/lessees should satisfy themselves as to the correctness of the information given.” The plaintiff bought the premises. He later discovered that the measurement (23,057 sq ft) was incorrect; the premises were significantly smaller at only 21,248 sq ft. The central legal issue was whether, in light of the disclaimer, the estate agents were liable to the plaintiff for the misstatement.
O’Donnell J delivered one of the majority judgments.4 He noted that so far as it was contended that that there was sufficient proximity or neighbourhood between the agent and the purchaser, so as allegedly to justify imposition of a duty of care on the agent, the proximity claimed related to two contracts, the plaintiff’s contract to buy the property from the vendor and the agents’ contract with the vendor. These two contracts “create two sides of a triangular relationship which the plaintiff contends justifies the imposition of a duty of care on [the defendant] towards the plaintiff”. The court noted that there was no contractual claim against the vendor either for rescission for misrepresentation or for damages for breach of warranty. This suggested that the statement concerning the area of the premises did not have contractual significance between the purchaser and the vendor, the primary parties to the sale, and therefore and in consequence, had no contractual significance between the agent and its client.
O’Donnell J emphasised that the starting point of the analysis in Hedley Byrne v Heller was that normally a party does not owe a duty of care in tort to another in respect of statements. This is an important distinction, because for actions the starting point is normally “duty of care unless”, whereas for statements it is “duty of care only if”. Therefore the role of the disclaimer was crucial. The judgment in Hedley Byrne stated: “…there is good sense behind our present law that in general an innocent but negligent misrepresentation gives no cause of action. There must be something more than the mere misstatement…The most natural requirement would be that expressly or by implication from the circumstances the speaker or writer has undertaken some responsibility”.
The key distinction was that, at least at the outset, “the approach to any disclaimer in negligent misstatement was to view it as a piece of evidence relevant to the question of whether a relationship existed sufficient to give rise to a duty of care, and that it was not appropriate to approach a disclaimer with the strictness that the courts analyse exemption clauses seeking to exclude liability which already exists”. This was clear from McCullagh v Lane Fox and Partners 5 where the English Court of Appeal held in a case which also concerned an estate agent’s liability for measurements that “the relevance of the disclaimer is to negative one of the essential elements for the existence of the duty of care. It negatives the assumption of responsibility for the statement. It implicitly tells the recipient of the representation that if he chooses to rely upon it he must realise that the maker is not accepting responsibility for the accuracy of the representation.”6 Other relevant factors would include the extent of the particular dealings between the agents and the purchaser, which might move the agents towards a relationship in which they should be regarded as having assumed duties to the purchaser.7
In contracts for the purchase of land, the intending purchaser can, before exchanging contracts, through his solicitor interrogate the vendor by pre-contract inquiries (and later by requisitions on title) and can rely on the answers as representations which have legal consequences. So the use of disclaimers to insulate estate agents, and their principals, from responsibility for representations made by estate agents is understandable in the contractual context.
Essentially, the High Court had applied the wrong test to the disclaimer, and read too much into the reasoning in one Supreme Court judgment8 which might be read as suggesting that the gap between liability in tort for actions and liability for statements had narrowed. However, the test was not whether the disclaimer excluded a liability which otherwise arose, because this approach conflated the approach to liability in tort for statements to the quite different approach to liability in tort for actions, and was only appropriate to the issue of whether it would be just and reasonable in the circumstances to impose a duty,9 which is an issue only relevant to liability for actions. Rather, the disclaimer was relevant to whether the estate agents should be regarded as assuming any responsibility or duty to potential purchasers for the accuracy of the statements. In the circumstances, there was no assumption of liability. Therefore, the estate agents were not liable in negligent misstatement.
The narrow margin by which the agents in this case avoided liability for the error, even despite the fact that the brochure contained a disclaimer, should serve as a salutary reminder to all agents to take considerable care not only in the accuracy of promotional material which might be seen by potential counterparties to their principals but also to ensure that they specifically and in clear terms disclaim that they are taking on any legal relationship or duty of care to potential counterparties, and to avoid any risk of subsequently doing so by conduct in their dealings with potential counterparties. An intending purchaser should be told to seek a contractual representation or warranty of any statement by an agent on whom the purchaser wants to rely.
- The approach in England in Hedley Byrne v Heller  AC 465 was immediately adopted in Ireland in Securities Trust Ltd v Hugh Moore & Alexander Ltd  IR 417, and Bank of Ireland v Smith  IR 646.
-  IESC 38 (1 June 2017).
-  IEHC 28.
- Majority judgments by O’Donnell J and Laffoy J with whom O’Malley J agreed; dissenting judgments by McMenamin J and McKechnie J.
-  PNLR 205, 222-223.
- Laffoy J also endorsed this approach to the disclaimer. However, the minority concluded that the relationship between the agent and the purchaser satisfied the foreseeability and proximity tests and that the agent communicated the relevant statement to a member of an identifiable class who would rely upon it. The minority view was that the language used in the disclaimer was materially different from that in Lane Fox because it included a representation that “every care” had been taken in preparing the brochure. As this was not the case, the remainder of the disclaimer had no legal efficacy.
- McAnarney v Hanrahan  3 IR 492; McCullough v Gunne, Unreported, High Court, Carroll J, 17 January 1997; Doran v Delaney  2 IR 61.
- Wildgust v Bank of Ireland  1 IR 570.
- Caparo Industries v Dickman  2 AC 605; Glencar Explorations plc v Mayo County Council  IR 84.
This document has been prepared by McCann FitzGerald LLP for general guidance only and should not be regarded as a substitute for professional advice. Such advice should always be taken before acting on any of the matters discussed.