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[1946] AC 465 (HL). Prior to this case, it had come to be accepted that liability in tort for negligent misstatement could only arise in exceptional cases, such as where there was a fiduciary relationship between the parties. In the instant case, the claimant advertising agency had asked the defendant bank for a reference in relation to one of its clients, a customer of the bank. The bank replied (without having checked on the company's current financial standing) that the agency could assume its client would be able to meet its financial obligations, a fact which later proved to be false. The bank included in its response a disclaimer of liability in connection with its assessment. The agency sued the bank in negligence to recover its losses from performing services for which its client could not pay. In the end, the action failed, albeit on the basis of the bank's disclaimer. However, in a highly significant obiter remark, the House of lords opined that, in principle, there could be liability for negligent statements (in addition to negligent acts) and this liability could extend to pure economic loss. The court accepted that reasonable foresight of the harm was not in itself sufficient because of the potentially far-reaching consequences of oral or written statements, and considered the need for a 'special relationship' as a way to limit the scope of this liability. It suggested that such a relationship would exist where, to the defendant's knowledge (actual or constructive), the plaintiff had relied upon the defendant's skill and judgment, and it had been reasonable in the circumstances for the defendant to have done so. In effect, the court thus proposed that liability for pure economic loss could arise where there had been 'reasonable reliance' by the plaintiff on the defendant's statement or advice.

Hence, the court in Hedley gave rise to the notion that a duty of care could arise in relation to statements where there is a 'special relationship' between the provider and the recipient of advice. Moreover, this duty of care could establish liability for pure economic loss where the following criteria were satisfied: (i) the defendant carelessly made a false statement to the claimant; (ii) the circumstances were such that it was reasonable to assume the statement could be trusted; (iii) there was a 'special relationship' between the parties amounting to a 'reasonable reliance' by the plaintiff on the information provided by the defendant; (iv) the plaintiff suffered economic loss as a result of this reliance. Although the court did not fully specify the nature of this 'special relationship', it strongly implied that the requirements for its existence are as follows: (i) a reliance by the plaintiff on the defendant's special skill and judgment; (ii) knowledge, or reasonable expectation of knowledge, on the part of the defendant that the plaintiff would adopt this stance of reliance; (iii) reasonableness in the circumstances for the plaintiff to have done so.

In addition, then, to the plaintiff's 'reasonable reliance' on the defendant's stated direction, the 'special relationship' that the court suggested included the notion of a 'voluntary assumption of responsibility' on the part of the defendant in providing the plaintiff with the information that he did. This concept has subsequently been employed to establish proximity in determining the existence of a duty of care in such circumstances. It arises from an undertaking, either expressed or implied, that the defendant will exercise care in providing information or advice to the plaintiff. Although there has been some doubt expressed over the years as to whether this criterion is really necessary or useful, this has largely been shot down by subsequent decisions by the courts reaffirming its basic importance. For instance, in Smith v Bush (1990), Lord Griffiths suggested that the 'voluntary assumption of responsibility' test is neither helpful nor realistic for establishing liability in such instances. However, in Henderson v Merrett (1995) Lord Goff stated that criticism of this concept by the court in Smith v Bush is very much misplaced, thus reaffirming its utility in the context of negligent misstatement cases.

Note that the duty of care under Hedley Byrne v Heller has been restated in more restricted terms by the House of lords in Caparo Industries v Dickman (1990).

See also Mutual Life v Evatt (1971), Esso Petroleum Co Ltd v Mardon (1976).

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