Professional Liability Guide

CHAPTER 1 – DUTIES

Duty to third parties Perhaps unsurprisingly, while a tortious duty owed by a professional to a client is not usually contentious, the same cannot be said of the duties owed to third parties. In appropriate circumstances, a professional can owe a duty to a non-client. However, the law has developed incrementally and cautiously; despite numerous instances coming before the High Court, the law is by no means settled. Until the 1960s, the common law precluded recovery in tort for pure economic loss (about which more is said below) caused by negligent misstatement; recovery for such losses could only arise in a contract. It was not until Hedley Byrne & Co Ltd v Heller & Partners Ltd 51 that the common law opened the door to allow a non-client to recover for such loss. The facts in Hedley Byrne are as follows. Hedley Byrne was an advertising agency that placed advertisements for a client (Easipower) on credit. Hedley Byrne sought to ascertain Easipower’s financial position and creditworthiness and so asked its bank (National Provisional Bank) to obtain a report from Easipower’s bank (Heller & Partners). Heller & Partners gratuitously provided an encouraging response (to the effect that Easipower was considered good for its ordinary business engagements), albeit on a without-responsibility basis. Easipower later went into liquidation, and Hedley Byrne suffered loss when it could not recover its outstanding debts. ‘A reasonable man, knowing that he was being trusted or that his skill and judgment were being relied on, would, I think, have three courses open to him. He could keep silent or decline to the give the information or advice sought: or he could give an answer with a clear qualification that he accepted no responsibility for it or that it was given without that reflection or inquiry which a careful answer would require: or he could simply answer without any such qualification. If he chooses to adopt the last course he must, I think, be held to have accepted some responsibility for his answer being given carefully, or to have accepted a relationship with the inquirer which requires him to exercise such care as the circumstances require.’ 52 In Badenach v Calvert, 53 the High Court considered whether a solicitor had a duty of care to the third-party beneficiary of his testator client’s will. In that case, the beneficiary commenced proceedings against the solicitor for failing to advise the testator about the risks of other prospective beneficiaries seeking to claim against the will. After the testator’s death, his stepdaughter successfully brought a testator’s family maintenance claim, thereby depleting the quantum of the testator’s estate. The High Court found that the solicitor did not owe the beneficiary a duty of care to advise the testator about potential family provision claims because the scope of the solicitor’s contract with the testator did not extend the duty of care to the will’s intended beneficiary. While their Honours did not need to consider causation and loss in the absence of an established duty, the majority noted in obiter that, even if a duty existed, there was no evidence of what the testator would have done if the solicitor had provided such advice and consequently no evidence that the solicitor’s failure to advise on that point had caused the beneficiary’s loss. On that basis, the beneficiary had not sufficiently demonstrated that he had suffered any loss from a valuable opportunity. Lord Reid expressed the principle in the following manner:

51 [1964] 2 All ER 575. 52 Ibid [583]. 53 (2016) 257 CLR 440.

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