Assignment I


Other specific situations which can arise due to negligent misstatement



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Economic Loss Lecture
Other specific situations which can arise due to negligent misstatement:
Firstly, the claimant does not have to be the individual who has commissioned the advice in the first place - although the claimant must still be in the mind of the defendant. Thus, in Smith v Eric S Bush [1990] 1 AC 831 the claimant sought a mortgage on a house, and the mortgage company employed a surveyor to check for structural defects. The surveyor acted negligently and failed to notice such defects. The claim was upheld. Although the claimant was not the primary recipient of the report (the mortgage company was), she was held to still have a viable claim - it would take no great stretch of the imagination for a surveyor to realise that mortgage companies do not survey houses for fun, but rather to work out the viability of a house as security on a mortgage. In turn, this means, logically, that a potential buyer exists who will foreseeably rely on the structural report.
Secondly, a widely disseminated statement will rarely meet the threshold for negligent misstatement, especially where the claimant is using the misstatement for a purpose other than that which it is designed for. This can be seen in Caparo (discussed in detail in the Duty of Care chapter) - the defendant’s evaluation of the company was to inform current shareholders of the company’s status, rather than enabling third parties to work out the viability of a takeover. Thus, because the claimant used the report in a non-ordinary manner, the claim failed. The same principle can be seen at work in Mariola Marine Corporation v Lloyd’s Register of Shipping [1990] 1 Lloyd’s Rep 547 - the claimant relied on a report from the defendant stating that a yacht was in a good state or repair, buying it. The yacht had severe corrosion, devaluing it. Because the original report was only intended to denote seaworthiness, rather than economic value, the claim failed.
It should be noted that this point is not entirely intuitive - third parties often use audits of the nature used in Caparo to work out whether a company is a viable purchase, and it is arguably foreseeable that a third party will use a yacht safety report to work out whether a yacht is a good purchase or not. Thus, this rule should be regarded as somewhat of a legal fiction. Notably, this principle will not stand, however, should the defendant know of the claimant’s intentions. Thus, in Morgan Crucible Co v Hill Samuel & Co [1991] Ch 295 the defendant widely disseminated a negative report on its financial state as a means of dissuading a takeover bid from the claimant. The report was later found to be inaccurate. The claimants sued and won - although the report was disseminated widely, the defendants knew that the claimants would use it to determine the viability of their bid. So, specific knowledge of a claimant’s intentions will defeat the rule against imposing liability for widely disseminated misstatements.
Thirdly, there exists a legal oddity in the form of cases regarding ‘negligent silence’. Such situations are not beyond imagination - if you always received advice from someone before you made a bad decision, it would not be unreasonable for you to assume that silence from that person would imply that the decision you are making is good. However, the law has stopped short of imposing a duty to avoid silence in such situations. See Banque Keyser Ullman (UK) Insurance Co v Skandia[1991] 2 AC 249, in which (obiter) it was stated that there was nothing, in principle, preventing silence from giving rise to negligent misstatement liability. However, it is important to note that ultimately, liability was not imposed in the case, primarily because such an approach would run contrary to the contract law on silence in negotiations.
Fourthly, negligent misstatement can occur where the defendant is a public authority. However, as noted in the chapter on the duty of care, it should be assumed as a starting point that liability will not be conferred. An example of where it will be however is seen in
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