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[1995] 2 AC 145. In this case the court held that managing agents can be liable in tort for pure economic loss caused by the negligent performance of their duties, either alongside or in the absence of a contract.

Lloyd's of London, an insurance market, is organized into syndicates (or groups) who share the business, risk and reward of underwriting insurance policies and similar risk-related projects. The syndicate acts as a market offering insurance, on the one hand, and investment opportunity, on the other. The actual business of a syndicate is run by its underwriting agents. The liability of an investor (known as a 'name') is unlimited; they share the profits but are also exposed to unlimited liability in the event of any loss.

In the instant case, overwhelming damage resulting from Hurricane Andrew in 1992 had led to unprecedented losses for insurers. After the hurricane, Lloyd's called upon investors to cover their share of the losses. Litigation followed in which the investors sued the the underwriting agents for negligent mismanagement of the investment fund. Mr Henderson was one of these investors, and Merrett Syndicates Ltd was one of the underwriting agents.

It was accepted that the underwriting agents had a duty to exercise due care and skill in its investment activities (see, for instance, s 13 Supply of Goods and Services Act 1982). However, the question arose whether the underwriting agents could be held liable to what were essentially indirect investors with whom they had not formed any contract. The problem here was that there was a contractual relationship between the individual syndicates and their respective investors, but not between the underwriting agents and those same investors. This led to the question of whether a duty could arise in tort on the theory that a voluntary assumption of responsibility was attributable, in this instance, to the defendant underwriting agents. The underwriting agents argued that the question of liability on their part with respect to the syndicates' investors should be governed by the terms of the contracts between the parties and not by the law of torts, which would favour the investors by establishing a more generalized duty of care.

The court held that Merrett Syndicates, as an underwriting agent, had assumed a direct responsibility to Lloyd's investors and a prima facie duty of care had therefore arisen. Accordingly, underwriting agents acting on behalf of Lloyd's investors owed a duty of care to those investors (in addition to Lloyd's) because they had assumed such responsibility. This was so, notwithstanding that the parties had no contractual relationship.

The court reasoned that there was sufficient foreseeability in this context to extend pure economic loss liability to 'un-proximate' third parties. However, the major significance here was the allowance of claims in both contract and tort, which blurred the divide between the two areas of law. Some of the investors claimed in tort to overcome the three-year statute of limitations in which an action must be taken in contract. In allowing such an action, the House of lords expressly overruled Lord Scarman's ruling in Tai Hing Cotton Mill Ltd v Liu Chong Hing Bank Ltd (1986) that held: 'there is nothing advantageous to the law's development in searching for a liability in tort where the parties are in a contractual relationship'. The allowance of concurrent actions was immensely controversial, as it ran contrary to legal orthodoxy.

With respect to the issue of pure economic loss, the significance of this case is twofold: (i) it extended the principle established in Hedley Byrne v Heller (1963) (i.e. that liability for pure economic loss without injury to person or property can arise in the making of negligent misstatements) from negligent misstatements to negligent performance of services; (ii) it established that the performance of services can found a tort duty concurrently with contractual obligations.

See also Hedley Byrne v Heller (1963).